Understanding Tax Audit and Managing Tax Liability.

For those who have been following our publications, the topic of today’s discussion may sound familiar. However, if you are a new reader, you can catch up on our previous posts; a link will be attached at the end of this write-up. In this edition, we delve into the realms of tax audit and tax liability. What is Tax Audit? Tax audit is a meticulous process where taxpayers’ filed tax returns undergo assessment in accordance with legal provisions. This examination ensures that the financial information forming the basis of the tax returns is accurately and comprehensively reported. Under the self-assessment regime, taxpayers are required to regularly file returns, be it monthly, quarterly, or yearly, depending on the nature of taxes involved. This filing must be a voluntary and truthful declaration of taxes with the Federal Inland Revenue Service (FIRS). The three key stages of tax audit, as elucidated by FIRS, are: Tax audits are crucial for various reasons, including ensuring taxpayers’ compliance with tax laws, validating the alignment of filed accounts with source documents, educating taxpayers on tax law provisions, and detecting any potential tax evasion, base erosion, and profit shifting to formulate preventive measures. What is Tax Liability? Tax liability refers to the total amount of tax debt owed by an individual, corporation, or entity to the tax authority, specifically the FIRS. Various taxing authorities, including federal, state, and local governments, impose taxes to fund essential services such as road repairs and national defense. Types of tax liabilities encompass income tax, sales tax, and capital gains tax. Tips to Mitigate Tax Liabilities: For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.