Introduction: Why Audit-Readiness Matters
Quick question: if the IRS or the Texas Comptroller emailed today asking for records, would you feel calm or queasy? Most owners feel the second one, not because they’re doing anything wrong, but because their documents live in too many places. Audit-ready doesn’t mean perfect. It means your story is organized, your numbers tie out, and you can prove what you filed without a week of digging. Let’s make that your new normal.
Why This Matters for Texas Businesses Right Now
The IRS is leaning harder on digital data and matching, meaning more letters when numbers don’t line up. Texas has its own enforcement focus, including sales and use tax and franchise tax. Audit-ready books protect cash, save time, and lower stress. The earlier you build the habit, the fewer late nights you’ll spend chasing receipts.
The Plain English Answer
Audit-ready is a rhythm, not a rescue. You keep clean accounting records, reconcile weekly, close monthly by a set day, and lock prior periods after filing. Attach proof to transactions as life happens. Separate business and personal money. Keep a tidy year folder with every filing and statement in one place. With that foundation, most audit or records requests become a short packet, not a fire drill.
Build Your Audit-Ready Foundation
One set of business accounts: Open a business checking account and a business credit card. Run all income and expenses through them. Never pay vendors in cash. Deposit cash, then pay by check or ACH. Commingling is the enemy of clean records.
Weekly reconciliation: Block 30 minutes each week. Categorize bank and card transactions, match deposits to invoices, clear undeposited funds, and reconcile to statements.
Attach receipts inside your software: Use the mobile app to snap a photo and attach it to the transaction. Make a quick note for business purpose, who and why for meals, job or client for materials, and the asset tag for equipment.
Close by the tenth business day: Produce a simple pack including profit and loss, balance sheet, AR and AP agings, sales tax liability, and a 13-week cash view. Share it with whoever runs operations.
Lock periods after filing: When you finish each month and especially after you file a return, set a closing date in your accounting software. Require a password to change closed periods.
Prove What You Filed, Before Anyone Asks
Year folder: One home for everything. Create a folder named by year. Keep monthly bank and credit card statements, payroll reports, loan statements, large invoices and contracts, sales tax filings, franchise tax filings, federal estimated tax payment confirmations, W‑2 and 1099 copies, and year-end financials.
Bank and GL tie out: At year end, statement balances should match reconciled balances. Trial balance should tie to your tax return. Keep a copy of the final trial balance and adjusting journal entries from your CPA.
Fixed assets schedule: Keep a list of business assets with purchase date, cost, vendor, serial numbers, and how you are depreciating each item. Attach invoices and financing documents.
Contracts and leases: Save signed copies for equipment, property, and major services. If a deduction depends on terms, having the agreement handy saves time.
Sales Tax: Your Texas Audit Hotspot
Configure rates correctly: Set the correct combined state, city, and special district rates in your POS and invoicing tool. Rates are location specific.
Map to a liability account: Sales tax collected should post to a liability, not income. Reconcile monthly.
Keep resale and exemption certificates: Collect valid certificates for resale or exempt customers and store them.
File and pay on schedule: Comptroller assigns a filing cadence. Put those dates on your calendar with a reminder one week earlier.
Payroll and 1099s: Small Steps That Save Big Headaches
Payroll on rails: Use a payroll service that files and pays federal and state payroll taxes. Reconcile each payroll run to your bank and GL. Review quarterly Forms 941 against wage expense and tax liabilities.
Reasonable compensation for S corporations: Document how you set your W‑2 wage. Keep board or member minutes, salary surveys, and role descriptions.
1099 discipline: Collect W‑9s before paying contractors. Track payments to 1099 vendors by EIN. File Forms 1099 electronically and keep confirmations.
Deductions That Pass the Sniff Test
Mileage and vehicle: Choose standard mileage or actual expenses. Log trips with dates, start and end points, and business purpose.
Meals and travel: Keep receipts, write who and why, keep agendas for conferences, and document primary business purpose.
Home office: Document square footage, keep utility bills, and apply the simplified or actual method consistently.
Repairs versus improvements: Keep invoices detailed so your CPA can classify correctly.
The 13-Week Cash View: Your Early Warning System
Build a weekly forecast for the next 13 weeks (receipts minus disbursements). Update it every Friday after reconciliation. This tool surfaces reality fast and guides decisions on AP timing and setting aside cash for sales tax and quarterly estimates.
Internal Controls Without Bureaucracy
Separate duties: Split responsibilities for entering, approving, and reconciling transactions.
Approval workflows: Route bills for approval before payment. Match bills to POs and receipts if handling inventory.
User permissions: Give access only as needed. Remove access immediately when roles change.
Close the Loop With Quarterly Touchpoints
Quarterly CPA check-in: Review year-to-date profit, update estimates, sanity-check deductions, and confirm tax law changes.
Sales tax and franchise tax reviews: Reconcile liability to filings. Confirm franchise tax status and due dates.
Document review: Scan year folder for missing statements or payroll reports.
What to Do If a Letter Arrives Anyway
Read the notice slowly. Identify the tax year, the issue, and the deadline. Respond with copies and a short cover letter. Reference the notice number, list included documents, and tie totals to your ledger and return. Keep scope tight. Provide what is asked without volunteering new topics. Call before the deadline if more time is needed. Ask for help when needed. A CPA can manage tone, scope, and timing, and speak directly with the IRS or Comptroller
Make It Stick With Simple Rituals
Friday 30: Reconcile, send invoices, schedule next week’s bills, update 13-week cash view, drop new filings into the year folder
Tenth day close: Deliver monthly pack and lock the period
Quarter day: Meet CPA, pay estimates, reconcile sales tax, review franchise tax status
January checklist: Issue W‑2s and 1099s, archive prior year, and start fresh folders
A Calm Finish
An audit letter feels personal, but it’s just a request for proof. When you respond on time with clear records, most audits end with minimal changes. Build a few steady habits, use your software well, and keep proof organized. You’ll feel the difference every month, and if a letter lands, you’ll already have the answer.
