No business owner wants to be audited by the IRS for obvious reasons of course, besides it’s just too much of a hassle. All you have to do to avoid an audit is make sure that you don’t draw any undue attention from the Internal Revenue Service. Here are some simple guidelines recommended by CPAs and bookkeeping services for small business to follow that can help when filing your taxes, personal or for your small business.
- Enter All Details Correctly– Surprisingly this is the most common mistake that tax payers make- people get their name, address or social security number wrong. It is irresponsible and extremely annoying for all involved. Double check and get someone else to crosscheck the data for you if needed, but make sure all information is provided accurately.
- If You Are Married, File Taxes Separately With Care– If you are married, make sure you and your spouse don’t claim the same expenses and list the same dependents. The IRS is known to check both spousal returns to ensure there is no duplication.
- Avoid Overstating Charitable Donations– The IRS is suspicious of large charitable donations, so if you don’t want the IRS to audit you or your business, you should avoid mentioning large deductions. It is also common practice among tax payers to overstate the value of a donated vehicle, something that the IRS is also aware of. So if you donate a vehicle, mention only the market value or else you will draw unwanted attention from the IRS.
Filing taxes is not a task to be taken lightly. One sure way to ensure you get your taxes right is to hire a CPA or invest in a bookkeeping services for small business with professionals with a working understanding of tax laws. Having a professional on board will relieve you of the pressure.
IRS audits- I am yet to meet a business owner who doesn’t shudder at the word, even online bookkeeper for that matter. No one likes to draw the attention of the Internal Revenue Service. So how do you draw the attention of the IRS? Well, the IRS has a system of sophisticated software and manual checks in place to determine which tax returns should be audited. Here are some triggers that can draw the attention of the IRS.
- Failure to Report All Your Income– This is a commonly made mistake. Business owners tend to overlook this when they have multiple sources of income. The IRS matches all reportable items to a person’s return. If they come across any discrepancy, they immediately proceed with a letter audit. So double check and make sure you have reported all your sources of income. Work with your in-house or online bookkeeper or accountant to ensure you don’t miss anything.
- Failure to Report Foreign Bank Accounts– The Foreign Account Tax Compliance Act requires overseas banks to report American account holders to the IRS. Individuals are also required to report foreign assets to the IRS. Unfortunately, as any in-house or online bookkeeper will tell you, compliance with this law increases the likelihood of you being audited, while failure to report it can result in penalties and has legal ramifications. The reason for this is the belief that those who hold foreign assets have something to hide. If you own foreign assets, make sure you report them.
- Mixing Business and Personal Expenses– The IRS is particular about keeping business and personal expenses separate. Some individuals are in the habit of writing off personal expenses as business expenses for deductions; this frowned on by the IRS. Excessive business deductions are a sure way to trigger an IRS audit.
- Earning Over $200,000– Tax payers with an income less than $200,000 have an audit rate of 0.78%, while those with an income over $200,000 have an audit rate of 2.71% and 7.5% for those with incomes over $1 million. So if you make an income of over $200,000, you should be prepared for an IRS audit at any time.
An IRS audit is not a bad thing as your in-house or online bookkeeper or accountant will tell you. If you have nothing to hide and pay the IRS what you owe, you don’t have anything to worry about.