Preparing for an Audit as a Roofing Contractor in Spokane WA

Audits are not just about taxes. For roofing contractors, state and federal agencies may review payroll records, worker classifications, sales and use tax, Business and Occupation tax, workers’ compensation, unemployment reports, and even certified payroll for public projects. With organized bookkeeping and the right retention habits, you can turn an audit from a stressful scramble into a quick verification of records. This guide explains what to keep, how long to keep it, and how good bookkeeping lowers risk if Washington State or the IRS comes calling.

Why roofers get audited

Roofing has traits that draw attention. Payments often happen in stages, materials purchases are large and frequent, subcontractor use is common, crews work variable hours, and projects may involve public agencies with retainage. Those traits cross several compliance areas at once. When your books tie each dollar to a job, a worker, a date, and a document, you reduce exposure across all agencies.

Retention rules you must know

You will keep some records to satisfy Washington State and others to satisfy the IRS. When rules differ, follow the longer period.

• Washington Department of Revenue requires businesses to keep complete and adequate records for at least five years.
• The IRS requires you to keep employment tax records for at least four years after the date the tax becomes due or is paid, and income-related records until the statute of limitations has expired.

The core file system for roofing contractors

Set up one system that works for both state and federal reviews. The goal is to prove what you earned, what you paid, and that you calculated and remitted taxes correctly. Use digital folders that mirror this outline and scan paper documents immediately.

1) Sales and job files

• Signed contracts, bids, and change orders
• Customer communications that affect price or scope
• Invoices and progress billing schedules
• Proof of deposits, progress payments, and final payments with bank match
• Evidence of sales tax charged and location codes used
• Retainage clauses and release documentation for public and private work

2) Purchasing and materials

• Vendor invoices, statements, and proof of payment
• Job allocation notes or purchase order numbers
• Reseller permit copies given to suppliers for resale items
• Documentation of any tax paid at source deduction

3) Payroll, crew hours, and labor burden

• Employee forms (I-9, W-4, pay rate agreements)
• Timesheets by day and job, including overtime calculations
• Pay stubs with itemized earnings and deductions
• Quarterly Washington workers’ compensation reports and payments
• Quarterly unemployment and Paid Family and Medical Leave reports
• Federal payroll tax deposits, Forms 941, and W-2s

4) Subcontractors and 1099 compliance

• Form W-9 before the first payment
• Certificates of insurance and license or bond information
• Contracts and change orders
• Payment approvals and lien releases
• Year-end Forms 1099-NEC

5) Equipment, vehicles, and mileage

• Purchase invoices, loan documents, and titles
• Depreciation schedules and Section 179 elections
• Usage logs for major equipment
• Business mileage logs with date, destination, purpose, and miles

6) Banking, cash, and reconciliations

• Monthly bank and credit card statements
• Canceled checks or images
• Deposit details and copies of customer checks
• Daily cash summaries if you accept cash
• Bank reconciliations with adjustments

7) General ledger and workpapers

• Chart of accounts
• Trial balances by month
• Year-end adjusting entries and schedules
• Sales tax, B&O tax, and use tax worksheets
• Federal and state return copies

Special Washington issues auditors examine

• Sales tax and B&O: In Washington, construction services performed for consumers are generally subject to sales tax and retailing B&O. Tax is due when billed, including progress billings.
• Reseller permits and use tax: Purchases for resale must be documented. If you use materials outside resale, you owe use tax.
• Retainage: Public projects often withhold up to five percent of earned amounts until release. Keep retainage records accurate.
• Workers’ compensation hours: Ensure hours are reported to the correct L&I risk classes with timesheets to support them.
• Unemployment and PFML reports: Quarterly filings must match your payroll records and W-2 totals.

IRS focus areas for construction and trades

• Gross receipts: Ensure all deposits and payments are recorded.
• Expense substantiation: Keep receipts and proof of payment for all materials, rentals, and tools.
• Vehicle and travel: Maintain mileage logs and supporting records.
• Worker classification: Document employee versus subcontractor status.
• Employment taxes: Retain four years of payroll tax returns and deposit confirmations.

How to store and present records

Move to digital first. Scan incoming paper daily and name files consistently. A simple pattern like JobNumber_Client_Date_DocumentType makes retrieval fast. Use a secure cloud storage system with backups.

When an audit is announced, prepare a response packet that answers the request list without handing over unnecessary files. Include a table of contents, a contact point, and an index mapping each requested item to its file location.

Month-end audit checklist

• Reconcile bank and credit card accounts
• Close out the month’s jobs to date percent complete
• Run a sales by job report and compare to excise tax returns
• Review purchases for tax treatment and job assignment
• Tie payroll journals to L&I hours and ESD wage totals
• Update subcontractor files with W-9s and insurance
• Backup and archive your accounting file

Building an Audit Binder

Maintain a current binder with:

• Business license, UBI, and reseller permit
• Insurance certificates and bonds
• L&I risk class rate notices
• Filing frequency and deadlines for DOR, L&I, and ESD
• Written policies for deposits, billing, timekeeping, and reimbursements

What to do when you receive an audit notice

1. Read the scope and time period carefully.
2. Contact your bookkeeping and tax advisor immediately.
3. Assemble only the requested records.
4. Tie totals to ledgers and bank statements before submitting.
5. Document and correct any discovered errors proactively.

How good bookkeeping lowers your audit risk

• Deposits are recorded as liabilities until work is performed, then moved to revenue.
• Job costing assigns every expense and labor hour to the right project.
• Payroll files include state and federal confirmations.
• Vendor compliance is fully documented with W-9s and 1099s.
• Use tax is self-assessed where applicable, with resale permits on file.

Final thoughts

Audits reward organization. With five years of complete Washington records and at least four years of federal employment tax records, your Spokane roofing business can face an audit with confidence. Keep every payment, hour, and invoice tied to a job, and you will turn a potential crisis into a routine review.

Need help building an audit-ready bookkeeping system? Our Spokane bookkeeping and tax team can configure your accounting, job costing, and compliance processes to keep the Department of Revenue, Labor & Industries, Employment Security, and the IRS satisfied. Schedule a consultation today to get started.

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