Every Year during tax time many Nigerian businesses start to get afraid because they have to prepare their tax returns. This task causes anxiety for many, and it is avoided to the last minute for many others. Most of us know that if the FIRS & LIRS (Lagos State) is involved then we have reason to be afraid. Audits are on the rise and they can be very intrusive and intimidating.
It is important to understand what causes an audit and how to know if your returns will be red flagged for an audit.
Most taxpayers are unaware that the FIRS & LIRS utilizes a certain formula to calculate certain exposures on their return. So here are a few things to look out for, if found, will get you audited every single time. First excessive deductions will get flagged; dependents get flagged because fraud with dependents is on the rise. Rental property is also item that gets flagged.
When an item gets flagged this means the FIRS or LIRS will pull your returns aside and take a deeper look at it. They then look at your past three years of returns to see if these are items you reported before or if these are new items. If these items are new and have not been reported before, you will receive an audit letter.
If you work in a certain profession you are surely more prone to get audited. There are several professions that the Tax authority assumes automatically cheats on their taxes. Those business concerns include automobile dealers, doctors, dentists, attorneys, etc. Although it is not fair for the FIRS to prejudge any profession, the fact is they do this all of the time. It is a little known secret they assume you will never find out.
The smartest thing that taxpayers can do is to be sure to protect themselves against such intrusions by ensuring their returns are prepared properly and have little to no risk of being audited. Once you are audited, you are more likely to continue to be audited every year after that. Protect yourself and avoid unnecessary exposure that guarantees your taxes being audited.
Below are some tips that will help you reduce your chances of being audited.
• Have proof of all your deductions
• Have report cards for all dependents claimed
• Have receipts for all expenses
• Have copies of all your tax forms
• If you are a business owner, make sure to have separate business account
• Keep all copies of your bank statements. If you’ve been audited once, an auditor will ask for the past year of bank statements
• Have tax return prepared by a seasoned accountant that can offer audit representation
Taxes are certain so staying ahead of the game is key.