Accounting,Tips,Avoid,Small,Bu business, insurance 5 Accounting Tips To Avoid Small Business Tax Audits
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Small businesses and sole proprietors are big targets for tax audits, but there are measures you can take to improve your accounting and reduce potential IRS red flags. However, regardless of how meticulous your tax return is filled out, a single large deduction or a highly profitable year is all that is needed for some auditors to get suspicious of your practices. Here are five things to remember the next time that tax-filing season comes around. 1. InconsistencyThe IRS is keeping track of you. It can be a scary thought, but they are able to keep track of your business annually (more so if you make quarterly payments) and any inconsistencies might be enough for your return to stick out among the millions of others. While a business is supposed to grow, expand, and evolve over the years, big leaps that are not well documented can be a red flag for auditors. Keep your records tidy and avoid vague language when descriptive text is requested (such as for deductions). Don't give them any room to ask questions, and they won't need to. 2. Internet FilingUsing the internet to E-file can be tempting. It's easy, low-cost, and the software helps you correct mistakes as you fill out the forms. While it will reduce the furious erasing and amount of papers flying around the room, it also makes it easier for the IRS to scrutinize your return. The information is clear, retrievable at any moment, and there is much less mitigating factors because there is always the presence of human error on the clerks' behalf.3. TimingFile early and quit worrying? For the small businessman, this might seem like the hassle-free solution. But several experts are now suggesting to better time your submission. The IRS may leave your return in a pile while an auditor mulls over it for several months or even years (auditing is possible for up to three years following submission). Additionally, if tax regulations change in your favor but you've already filed early for that periodtough luck. You'll have to wait to capitalize on the new changes until the next year. 4. Hire and FireWhy are you getting audited? Is it because you didn't hire professional accounting services? Or is it because your current accountant isn't doing his job? If you've been filing taxes for your own business - you're fired. Hire a pro. If you already hire an outside service, don't be afraid to look over the tax return for possible accounting errors. If it seems sloppy or there are clear mistakes, it's time to find someone new. 5. Big DeductionDid you buy an expensive new piece of equipment for your business this year? Any deduction that stands out among others is likely to get noticed. If most of your deductions are small, and there is a single multi-thousand dollar expenditure, you may end up on the taxman's list. Again, specific language is your best defense. If you still get an audit after following these tips, it might have nothing to do with your accounting skills. The government is cracking down on businesses across the board, but keep your receipts handy and you won't have to worry.
Accounting,Tips,Avoid,Small,Bu