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What to expect from an EDD audit

On: July 31, 2020

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In California, an EDD audit, or an audit from the Employment Development Department, is something that will be unavoidable for any type of business. These audits tend to look more into the employment side of your business and make sure that all the correct taxes are being paid and no workers are getting mistreated. There are two main types of EDD audits that can happen, one being worse than the other, but being prepared will help you in any situation. There are also a series of procedures that you will have to go through. What types of EDD audits are there? As a business, there are some audits that you will run into regardless of if you follow the rules. Depending on what the audit is will and should determine how you proceed because both are different beasts. A verification audit is a random, automatic audit from the EDD that every business owner is subject to. It depends on your business size and how many people you employ, but a verification audit can happen at random at any time. A request audit is much more serious and is specific from the EDD. This is usually because the EDD wants to look into either more information or think there may be something going on. Both audits will require about three years of records going back, so make sure that you have a reliable system going at least that far back, however, more is encouraged. What to expect from an EDD audit When are you first audited you will receive an audit notice, a pre-audit questionnaire and a pre-printed standardized request for records covering a specific audit period. Before you do that, you should always reach out to a lawyer knowledgeable in the tax field to ensure that you do not send anything you should not send in case the EDD finds you at fault or wants to keep digging.  Call Leading Tax Group and don’t attempt to do it yourself. Tax agencies are not your friend and you should always air on the side of caution to make sure you do not get any hefty fines added to your routine. You’ll want to start preparing all the necessary documents, which will usually require payroll matters for all employees going back at least three years. Invoices, contractor agreements, and more may also be needed, so make sure you review and have everything up to date. One step you can take beforehand is to review and update contractor agreements, as these can get you in trouble if you are not careful. Another precaution for EDD audits is to always make sure that you file your taxes on time. Not doing so can not only flag you in their system but does not look good when you have the EDD scrutinizing you for not being a responsible business owner. EDD audits are not the end of the world, but they can mean a whole bunch of fines that no one wants.  By making sure you have your records and are up to date on your matters can go a long way.
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