In our Case Study Audit series we will go under the hood of pet sitting businesses and do what no one else is doing in the industry. Find out why companies were audited, how they survived, and their reflections looking back. We are so thankful to these companies for helping us to put truth to all of the rumors that fly around.
This next business has chosen to remain anonymous but still understands the importance of helping educate the industry. We are so thankful that they chose to share their personal experiences with their IRS Audit.
BEFORE THE AUDIT:
Do you want this to be anonymous or do you mind telling who you are? Anonymous
When did you start your business? 1998
Tell us if you had legal council advise you on how to set up and what was right and proper (accountant and lawyer) Accountant
Approximately, what was your annual revenue at the time? Alternatively, would you consider yoursef a small (Under 100K) medium (100-250K) or large (250K+) company? Large
Did you have ICs or employees at the time? ICs
How long did you have staff and what made you choose that classification of workers?I would say the audit cost me about $10k between accountant fees and bank fees for not having good record keeping. They had me get a copy of every check written etc. I had ICs since 1998 and was audited in 2010.
Were you ever afraid of being audited? Was it ever in the back of your mind? Yes everyone is always afraid of being audited. You are guilty until proved innocent.
TELL ME ABOUT YOUR AUDIT
How were you notified that you were being audited? What department audited you? How long did the entire process take? The IRS audited me. It took over 2 years and cost me a lot of money.
What was their reasoning for auditing you? Not sure how I was chosen, they did say though…if someone is audited it can open up audits for anyone connected to them. Like if an employee or IC was audited and connected to you it could open you up. As for the audit they were looking for cash businesses and we are not a cash business.
Tell us about the help that you had going through the audit. Did your lawyer, accountant, another agency/advisor help guide you through it? My accountant was extremely helpful and had dealt with them. It cost me a lot of money.
What did they require from you throughout the audit? Bank statements, cancelled checks, receipts, IC agreements.
Did the agency involve your staff? NO
How did you feel throughout the process? What impact did it have on your life? Your family? Your business? I felt sick and it was very stressful. I did not have great copies of all of my checks and my bank was bought out. I had to pay thousands of dollars for copies of checks. It is time consuming and not the least bit funny LOL
When you submitted the evidence they requested, how sure were you that you were going to pass through with flying colors? They [IRS] lost my documents more than once, which cost me more money again; I was guilty into proved innocent. They also went back 4 years.
AFTER THE AUDIT:
What was the finding of the audit? I owed some back taxes and late fees. Blessed that my IC did not need to be reclassified. My IC agreement was resigned annually and that made a big difference in the classification.
What to do attribute to the findings? Good defense? Bad record keeping? Out of compliance? Etc? Good help from my Accountant and bad record keeping from my side. I used another software (bluewave) and when I lost them I lost all of my data. I now use Power Pet Sitter (PPS) which links with Quickbooks online so no entry needed from my part. I take mostly credit cards and have copies of every check written and received. My booked are current monthly.
If you had to make changes, how did you go about making them and what were they? Copies of EVERYTHING, a better software (PPS)that links with a professional software company (QBO)
Did you have to pay back taxes, penalties, fines, interest, etc? How were you able to afford it all? How long did you have to pay them? Yes. I owed about $15k in back taxes due to miss filings and fees. They went back and audited me from 2005-2009 it was a nightmare. All my info was in Bluewave and when I left Bluewave I lost all my history. That is the main reason why I have PPS that is linked to QB Online and main reason I take cc. I have an audit trail! I would say the audit cost me about $10k between accountant fees and bank fees for not having good record keeping. They had me get a copy of every check written etc.
Tell me about how you feel about that audit now. Are you happy or sad that you went through it? Did it make you better? Yes it made me better and change the way I do things.
What advice would you give to other pet sitters to try NOT to be audited? Good Record keeping. Use professional scheduling software that is not your accounting software. Link to a professional accounting program and get a great accountant. Have your IC agreements updated and signed annually.
What do you think is the biggest misconception you see being passed around about being audited. Everyone will be audited one time or another. The IRS is just realizing the amount of money a pet sitting company can make and they think we have potential to be a cash business.
If you knew then, what you knew now, is there anything you would have done differently? Never use a software that does your record keeping internally. Only use a software that can link everything to Quickbooks or never leave your software company.
The part that I found the most interesting was how pivotal the pet sitting software played in the record keeping abilities. It made me wonder about the businesses who change software companies (assuming they have one) Do they maintain all their records for four years back like this company needed?
It also made me think about the companies that accept or write checks. Do they keep a copy of every single one personally or rely on the bank for that reason if they ever needed? Using credit cards ensure that there is a check and balance of the system. The CC report you get at the end of the year, matches the revenue in the pet sitting schooling software, matches the money deposited into the business bank account.
My jaw also dropped realizing that on top of all the stress this also cost this business owner $25,000.00!
How do you do things? What do you think about what you just read? Sound off below and thank the business owner and include your thoughts as well!