What is the best way to prepare for a cash business audit?

When a tax examiner audits a cash intensive business, she looks at several factors to see if all income is being reported.  According to the IRS, the primary indicators of unreported income are: (1) a lifestyle that cannot be supported by the income reported; (2) a business that continues to operate despite year-after-year losses; (3) bank balance and asset increases when there is a net loss; and others. The auditor will examine the business bank account and assume all deposits are income.  If there is a loan to the company be sure to have the supporting documents for the loan.  Also be sure that you can explain every deposit into your account. You will almost always fare better if you retain a professional to represent you during this, or any other type of audit.