Are you a Michigan small business? Here is what you should keep for an audit.

What a Michigan small business should keep for an audit by Benchmark Ledger Solutions

No business owner enjoys the idea of an audit, but preparation makes all the difference. Whether it is the IRS, the State of Michigan, a grant funder, or a lender, being ready with the right documents protects your business from penalties and reduces stress. Most audits are not triggered by fraud. They are triggered by missing records, inconsistent numbers, and tax returns that do not match a business’s internal books.

For small businesses in Michigan, maintaining proper documentation is not just about compliance. It supports accuracy, financial clarity, and smooth operations. The following guide explains what you should always keep on hand and why it matters.

Bank and Credit Card Statements

Auditors want to see a complete financial trail. Bank and credit card statements allow them to match the numbers in your books with real transactions. This includes:

• Business checking accounts

• Savings accounts

• Credit card statements

• Merchant processor statements

Keep digital and printable copies for each month. Auditors compare these with your bookkeeping records to verify accuracy and ensure the business is not mixing personal and business funds.

Receipts and Proof of Purchase

Every expense you claim must be supported by documentation. Keep receipts for:

• Supplies

• Equipment

• Inventory

• Meals and travel

• Software and subscription services

• Repairs and maintenance

• Utilities and rent

If possible, record the purpose of the purchase on the receipt. For example, “client meeting” or “new equipment for production.” Digital copies are accepted by the IRS and the State of Michigan as long as they are clear and complete.

Invoices and Sales Records

For small Michigan businesses, especially retailers and service providers, sales documentation is one of the most important components of an audit. This includes:

• Customer invoices

• Point of sale reports

• Online sales records

• Estimates and final invoices

• Refund documentation

These records must match the income reported on your tax return. Missing invoices or inconsistent totals are a common cause of audit adjustments.

Payroll Documentation

Any business with employees must be able to show how wages were calculated and reported. Keep:

• Timesheets

• Payroll reports

• Pay stubs

• Tax filings for federal and state payroll taxes

• Copies of W two forms and W four forms

• Records of contractor payments and W nine forms

Michigan businesses are often audited for payroll because errors are common. Documentation protects you from penalties and ensures proper classification of employees versus contractors.

A man looking out of a large window

Tax Returns and Supporting Schedules

Always keep copies of:

• Federal tax returns

• State of Michigan business tax filings

• City returns if applicable

• Sales tax filings

• Annual reports for your LLC

• Estimated tax payment confirmations

Auditors compare these filings with your internal books to make sure the numbers match. Supporting schedules, such as depreciation tables or mileage logs, should also be saved.

Mileage and Travel Logs

If you claim vehicle expenses or mileage, the auditor will require detailed records, including:

• Date of travel

• Purpose of the trip

• Exact mileage

• Starting and ending locations

Michigan businesses frequently lose deductions because of missing or incomplete logs. This documentation is essential if you ever claim travel expenses.

Contracts and Agreements

Keep copies of any legally binding documents, such as:

• Lease agreements

• Vendor and supplier contracts

• Service agreements

• Loan documents

• Insurance policies

These help auditors confirm financial obligations, loan interest deductions, and large expenses.

People walking around a busy space

Inventory Records

If your business sells physical products, keep clear inventory documentation. This includes:

• Beginning and ending inventory counts

• Purchase records

• Cost of goods sold calculations

• Waste or shrinkage logs

Missing inventory records often result in adjustments to your income and tax obligations.

Internal Financial Statements

Auditors often request your internal reports to verify your financial position. These include:

• Profit and loss statements

• Balance sheets

• General ledger reports

• Cash flow statements

Producing these reports easily shows that your books are well-maintained and accurate.

Documentation of Loans, Grants, and Funding

Many Michigan businesses receive grants or loans. Keep:

• Award letters

• Spending requirements

• Proof of how funds were used

• Bank deposits connected to funding

Grant funders and lenders often conduct their own audits, so proper documentation protects both your business and your funding.

Final Thoughts

Being prepared for an audit does not mean expecting one. It means running your business with clean, organised records that reflect accuracy and professionalism. Clear documentation reduces stress, saves money, and protects your business if questions arise.

For many small businesses in Michigan, keeping these records organised is overwhelming. A reliable bookkeeping system makes it easier to stay compliant and confident. If you need support building an audit-ready financial structure, Benchmark Ledger Solutions can help you stay ahead of any audit and maintain clean, accurate books all year long.

*This article was written or edited with AI assistance.