WA STATE AUDITS
The audit will cover your Income, Deductions and Purchases. You may be lured to pay no sales tax by shopping online or in Oregon - but you're not off the hook for sales tax. If you USE items in Washington that were purchased where local tax was not paid, you owe "use" tax.
Use tax rates are the same as the sales tax rates. Unlike sales tax, which is calculated on where the sale takes place, use tax is calculated on the place where the goods are first put to USE in Washington. You pay this tax using the paper tax form or the online form at www.dor.wa.gov. Businesses pay this when they file their Excise taxes.
- Learn the www.dor.wa.gov requirements for your business.
- Review out-of-state purchases and pay the sales tax on your next Excise tax return.
- Always reconcile your accounting system's gross receipts to what you report to Washington and your City.
Unlike the State audit, the tone of a Federal audit is more stringent. No one really knows exactly how U.S. taxpayers are selected for audit. The mechanisms that the IRS uses to select returns for audit are closely guarded secrets, however, below are a few potential audit triggers:
- Self-employment income, especially from occupations that traditionally receive payments in cash
- Spike in interest income, but unreported income to substantiate that interest income
- Low or unreasonable compensation for S-Corp owners
- Independent contract labor expenses without payroll expense
- Itemized deductions that exceed IRS averages based on the level of income
- Home-based businesses, especially those with home office deductions
- Business (including Rental) expenses that are large in relation to income
- Substantial business meal & entertainment deductions
- Significant business auto usage
- Losses from a business activity, particularly those that might be considered a hobby
- Comply with exactly what the auditor wants: nothing more.
- If you haven't filed your 2008 tax return yet, wait until your audit is over. Don't file in the middle of an audit.
- Don't go it alone - get your accountant involved immediately.