Business Resource Guide
This resource guide brings together key audit insights and compliance tools from the EDD, CDTFA, and IRS to help business owners stay prepared and protected. It highlights common risk areas, practical steps to take now, and the documentation standards agencies expect. Use it as a working reference to reduce exposure, strengthen your records, and stay ahead of potential audits.
California Employment Development Department (EDD) Resources
EDD publishes various information sheets to answer questions on how EDD will characterize workers in specific industries. We included various guides that cover specific industries and issues that arise in an EDD audit:
- Employer Determination Guide – Independent Contractor Factors (Old Test – Borello)
- Construction Industry
- Real Estate & Sales Persons
- Determination of Proper Employer Where Employee Works for Multiple Entities
- Tax Audit Guidelines – this is a general overview of EDD audits and issues that typically arise. EDD audits are typically 3 years. However, EDD audits can be expanded to 8 years under certain circumstances (See CUIC 1132).
EDD Tips:
- Properly classify workers. Misclassifying employees as independent contractors is one of the fastest ways to trigger penalties.
- Ensure payroll tax filings match actual payments to workers. Discrepancies raise red flags quickly.
- Don’t ignore EDD notices. Early resolution can significantly reduce penalties and prevent escalation.
Helpful Link: https://edd.ca.gov/en/payroll_taxes/
Top Risk Areas:
- Misclassifying employees as 1099 contractors
- Late or inconsistent payroll filings
- Cash payments not reported through payroll
What To Do Right Now:
- Review worker classifications annually
- Ensure payroll reports match bank activity
- Keep signed agreements with all workers
Pro Tip:
EDD audits often start small but expand quickly if inconsistencies are found.
CDTFA Resources: Sales Tax Compliance Resources
- Filing Deadlines For Small Businesses – Here is a great list of deadlines for businesses that file sales and use tax returns.
- CDFTA Sales Tax Guide – A great guide for business owners who report sales and use tax.
Tips:
- Make sure you’re collecting and remitting the correct sales tax rate based on location (district and local taxes matter).
- Maintain detailed sales records and exemption certificates. CDTFA audits are documentation-heavy.
- Watch for cash vs. reported sales discrepancies. CDTFA aggressively audits businesses with high cash activity.
Helpful Link:
https://www.cdtfa.ca.gov/taxes-and-fees/
IRS Audit Resources for Businesses
- IRS Small Business Tax Center – This website has many useful resources for business owners.
- IRS Audit Overview (What to Expect) – This overview gives you insight about the IRS audit process.
- IRS Audit Records Request Guide – A good guide on what records you need to keep and produce if audited.
- IRS Audit Techniques Guides (ATGs) – IRS publishes a good resource on IRS’ own techniques for auditing specific industries.
- IRS – Check Your Refund – IRS has a website where you can check the status of your refund.
- IRS Tax Withholding Estimator – use this website to estimate federal income taxes to withhold from a W2 employee’s paycheck.
Tips:
- Keep clean, contemporaneous records. The IRS wins cases based on documentation, not explanations.
- Reconcile bank statements to reported income. Mismatches are one of the biggest audit triggers.
- Respond to notices strategically, not emotionally. What you say (and how you say it) can expand or limit the scope of an audit.
Helpful Link: https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits