When your clients hire you to prepare their taxes, they’re really hiring you for two reasons: to maximize their deductions and to reduce the risk that they will be audited. If your clients still share their financial records with you by handing you a shoebox full of receipts, using a cloud-based accounting software is one of the best opportunities you have to minimize both the risk of an audit and the pain of going through one.
Cloud-based software can be accessed on any device that connects to the Internet. Document-capture features allow your clients to snap a photograph of every important receipt, invoice, and other financial record that they accumulate. Together, these two capabilities mean that your clients can snap photos of their receipts on their phone whether they’re at their desk or on a business trip across the country. Creating electronic records to replace paper records reduces office clutter. More importantly, creating electronic records can help you reduce the risk of an audit for your clients while also making it easier to support each deduction if an audit does occur. Here are three key ways cloud-based accounting software can help you better serve your clients:
- Tally cash transactions accurately: When your clients accept cash, they may be tempted to round each transaction down to the nearest dollar to calculate totals more easily. Unfortunately, not only can a glut of round numbers suggest that your figures may not be completely accurate, but the IRS also has a formula for calculating how much a business is likely to have earned in cash transactions. This formula is based on a variety of factors—including the type of business your clients own and the 1099-K your clients’ credit card processor sends to the IRS—but no one outside of the IRS knows the secret formula. A cloud-based document capture software allows your clients to quickly snap a photo of any receipt or invoice for a cash payment immediately after a customer or client pays it. Many tools will automatically extract the amounts on the receipt, eliminating the temptation to round figures to make them easier to tally.
- Keep an electronic record of each and every transaction. Your clients may be notified that they are being audited two to three years after they file their returns. If you rely on the “old shoebox full of receipts” accounting method, sifting through all of those records may make an audit more painful than it needs to be. A cloud-based accounting software that allows your clients to capture a photograph of every important financial record that they accumulate in their office or on the go allows you to both capture and organize receipts as they are received. Since you can store them all in a single central location, you won’t need to worry about losing one or more boxes of receipts.
- Support each deduction with accurately categorized expenses. Waiting until months, weeks, or even a few days have passed since receiving a receipt might make it impossible for your clients to accurately remember which receipts in their wallet were for that business trip into the city and which were for an evening out with friends. Because cloud-based document management software can be accessed from any device, your clients can easily snap a photograph of business receipts for you to categorize immediately. In the event of an audit, your clients’ records will be both rigorously documented and clearly organized.
Stringent record keeping practices ensure that each and every expense and transaction is appropriately categorized and is critical to both preparing returns without red flags that can trigger an audit and to surviving an audit with minimal headaches. To prepare returns that exclude common audit triggers, one of the best tactics you can deploy is to prepare your clients’ returns as if you will be audited – and that starts long before you sit down to prepare their forms.
Author Bio: Kevin Miller currently serves as the Chief Marketing Officer overseeing all of Neat’s brand, marketing and revenue operations. Prior to joining Neat, Kevin was a co-founder and CMO at Salesfusion, a SaaS marketing automation solution for Mid Market companies. Kevin played an integral role in building the brand of Salesfusion and helped lead the company from 0 to over $8 Million in annual revenue. Kevin has served in multiple marketing, sales and demand generation roles and was the principle of his own demand generation consulting firm that helped SaaS companies develop modern lead gen programs. A veteran of SaaS, Kevin brings years of experience in b2b marketing with a deep understanding of marketing process, systems and strategy relative to growing a SaaS business.
