Who gets you up in the night as a business owner? Provision of product rodents?? A computer virus that prevents access to software in your accounting system? The IRS’s reckoned audits notice?
Audits are particularly terrifying for
small or medium-sized businesses owners, due to the possibility of being kept
accountable for extra taxes on a restricted budget or personal responsibility
without the assistance of an experienced accounting office.
Let me calm you down if the IRS is hurting your dreams: just about one in every 100 companies is audited every year. In fact, you should do some easy stuff to stop the IRS’s threatening look.
Your risk of being audited, as a small business owner, increases when you are:
- Get more than 1 million dollars
per year (it’s not bad, but if it’s you, it’s probably time to get yourself and
your property protected).
- Fail all your revenue to
- Claim company deductions which
differ from your revenue.
As the old saying says, it is worth a pound of cure for an ounce of prevention. We are here to help prevent errors that led first of all to an IRS guide for audits.
do small businesses get audited?
In this post, we will discuss six of the
key reasons why small businesses are audited along with tips on how they can be
However, for reasons beyond your control,
you can be audited. The IRS uses random checks to check certain returns, and the outcome of any of the business partners or creditors can even be audited for the return.
Nonetheless, I have asked our good
neighbors at the IRS for some useful tips and tools for these issues you can
monitor, and have put together the following list:
6 Tips for IRS Audits Prevention
1. Avoid expensive events
Prepare to take a future customer out to the old game or to win a concert? That’s OK, but on your own time, it’s going to have to be.
The Government has eliminated tax deductions as part of the 2017 Tax Cuts and Jobs Act. And you lift a big red flag at IRS to send an inspector your way if you want to keep the program in place to hold the customs gratitude for you annually.
However, the food is still good, so eat up.
IRS notes that:
If the taxpayer (or the employee of the
taxpayer) is present and food or drinks are not considered excessive or
expensive, the taxpayer may continue to deduct 50 percent of the costs of
business meals. Meals can be offered to an actual or future business client,
client, counselor, or related company touch. Unless the expense of food is shown
separately on one or more bills, invoices or receipts, and drinks supplied
during entertainment events shall not be considered entertainment.
Don’t take your deductions overboard
Don’t get me wrong, you should take every
last deduction that you are entitled to as a hard-working business owner.
Nevertheless, you should also be aware of the fact that the IRS uses a computer the program, which compares the amount and number of your deductions to other companies in your income pool. And you will learn of a nice IRS department if you take a regular company with 12 deductions, and you are taking 212.
You shouldn’t skip allowances, which you legitly deserve for fear of an audit. CPA Jeffrey Levine notes that one of the biggest errors he finds to be committed by small companies is not to subtract legitimate business expenses like a home office out of fear of an audit.
This means you should think again if you
believe you can save money by taking a deduction of $500 to lay a 10 $piece of
floodplain in front of the shop and call it a wheelchair ramp. It is also not a
good idea to take dozens of “split-size” deductions because the IRS
is no longer permitted.
According to Hector Garcia, CPA and
Quickbooks consultant, home office deductions, travel, and car miles are among the most commonly used company deductions. If necessary, use them but be aware that the IRS’s eyes are on you.
Create or form an LLC
The fact that it provides evidence of a
degree of management and financial integrity by the company indicates that
small businesses are more audited than corporations.
There are other compelling reasons to
consider incorporating in addition to a lower audit risk:
- Personal assets (homes, cars,
savings) are also available for many small-scale companies to repay investors
if their company falls below.
- Enterprises prefer to receive
corporate loans from banks rather than small businesses.
- Enterprises can earn more
deductions than small companies (such as pension plans and health insurance for
You should add “less risk of being
audited” to your list of reasons if you have thought about adding it
Be proactive on abnormalities
Consider this: your small landscape business has earned around 80,000 dollars in profits for each of the last three years. To expand this year, you have won a profitably new contract with the local authority and invested in three new commercial lawnmowers to work on this additional work. You now have three times the previous year’s
profits, and in addition to 179 deductions unexpectedly you demand more than
This will trigger some IRS warnings. There is a good chance. But rather than sending the auditors to knock, be cautious,
instead of hiding under your table with your fingers between your ears.
So collect those receipts for the mowers,
the contract with the local authorities, also register your expansion plans and include it with your return. It could take a little more time, but it will probably prevent an audit (which you would have to collect anyway).
Don’t file an amended return unless it is necessary
It could be hesitant to consider when
you’re up against the clock, “I’m tired and I have to open the shop at
6.00 a.m. Tomorrow.-Tomorrow. Right now, I’m just going to file this to make the date, and then file an updated return to fix mistakes later.
Poor idea.-Terrible idea. To send an amended return means to carry a large sign that tells the IRS you are not sure what you do. The IRS notes that:
In other words, the updated return gives the IRS yet another chance to test and the updated return itself may be a red flag, but you might get a mistake in the original return.
When, frankly, you have fucked up and missed a valid payment, which will cost you thousands of dollars, you file an amended report. Yet investing an extra hour or two for the first time to get things right is even easier.
It is the only way to do so in 2019.
According to the IRS, about 10% of individual taxpayers have used paperwork to file in 2018. Some business owners are out there, I’m sure, who file with paper forms manually because they are Luddites or because they want to keep it with the IRS somehow. But you could also include a handwritten note with the
formatting “Dear IRS, please check this return with a double
Why does this happen? The IRS electronic filing system’s website says: “A paper return error rate of 21%. The e-filed
returns, however, show an error rate of just half one percent.
In other words, a paper return includes errors more than 40 times the chance of a return submitted electronically.
Additional reasons for filing online:
- Software for electronic tax filings allows you to find tax credits and deductions which you can lose most while using pen and paper.
- You can collect your refund in less than three weeks with direct deposit and online filing, instead of waiting for a paper return for two months.
- Most tax filing software contains audit warnings on things such as home office deductions or a
combination of personal and corporate miles.
Despite what you learned from Irwin R.
Schyster, the IRS isn’t about small enterprises, and it prefers a smooth return
rather than additional tax collection work.
are you expected to do if you are audited?
In this post, we looked at some of the things you should do to stop triggering the IRS audit as a small business owner all year long. Yet how about an audit? So what about an audit?
Don’t be afraid. Don’t be painful. This is the time to come, have the most important documents you have, and collaborate politically with the IRS representative you deal with. The IRS has its own guidance for the smoothest possible conduction of an audit.
And if you really want to play it safe, get good accounting software and use it each day to weed out errors before they occur and find a trusted business accountant, you can turn to and stay on the correct track in times of trouble.
of 2020 Tax Audit
The IRS revealed a variety of options earlier this year to help taxpayers impacted by the COVID-19 pandemic and the subsequent economic uncertainty.
The program referred to as People First
The initiative includes stop-to-business, field, and letter audit until 15 July.
Continuing cases will continue to be investigated and appeals handled,
but not by personal meetings.
The IRS is still asking taxpayers to respond to
correspondence sent in that period, following the cessation of tax guide for audits in 2020.