As a small business owner, you probably wonder from time to time how often, if at all, your business could be audited. Though small business audits, much like all other types of audits, are more times than not random, it is important to take steps to ensure that you are prepared should you find yourself faced with an IRS audit.
SOME RED FLAGS THAT CAN TRIGGER AN IRS AUDIT
Here at Tax Alternatives, our team of dedicated professionals take pride in providing all our valued clients with quality services, and that includes insight needed to help manage, run and protect your small business. There are a number of red flags that can trigger an IRS audit. With that said, our team of experts wants to provide our small business clients with the insight they need to avoid red flags that can be easily noticed by the IRS. Sadly, most small business owners are not familiar with these red flags and therefore, are unaware of what actually may initiate or trigger an audit, which is why we want to take this time to clarify for our valued clients, what those red flags are.
- · Entertainment costs and spending – If you take pride in treating your clients to sporting events or even concerts, then it is important you understand that business related entertainment cost deductions are no longer allowed. There are, however, some meals shared with customers, potential new clients, or even business consultants that are still viable as acceptable deductions, especially if you, as the business owner, are present at the dinners and are not overspending on food and drink. If such is the case, you are allowed to deduct 50% of the meal. Extravagant entertainment costs are a definite IRS red flag.
- · Be sure all your deductions are legitimate – Every small business owner spends hours on end planning strategies for their business growth as well as on daily operations of the business. It is normal to take advantage of whatever deductions you can but you must be sure that every one of them is legitimate. We want to be sure you understand that the IRS will compare deductions of other business owners within the same industry to see that you are claiming the same type and number of deductions as your competitors are. If other companies within your industry and of similar size are itemizing perhaps 50 deductions, but you clearly itemize over 250, then chances are you may find yourself faced with an IRS audit. So always use caution and ensure deductions taken are both necessary and ordinary for your business and industry.
- · Watch those charities – It’s always a nice thing when we can donate to charities and those who are less fortunate than us. But often times business owners needing to bring down those tax dollars owed will all of a sudden show a large amount of monies donated to a specific charity which will, every time, send up a red flag. We highly recommend that if you are going to donate to a charity, it is much better if you donate gradually, year after year rather than one huge lump sum.
- · Be sure to file your Income Tax on Time Each Year – When business owners constantly file their income tax late each year, you may find yourself scrutinized by the IRS. It is best to file your taxes on time every year and avoid being noticed. Should you need to file late, then be
sure to always request an extension, but make a habit of filing on time because it will keep you under the radar. Filing electronically is the best option these days.
THE PROFESSIONALS YOU CAN ALWAYS RELY ON
Here at Tax Alternatives we take tremendous pride in our premier tax filing and preparation services we provide to all our valued clients. Our team of professionals is steadfast in doing what we can to ensure that our clients avoid small business audits which is why we encourage you to take advantage of our affordable, premier tax services each year. Simply give a shout out to one of our staff and schedule a free consultation today!