What to Do When Tax Audits Are Headed for Small Businesses


A food critic is the worst nightmare for any restaurant or cafe running smoothly minding its own business. The letter of arrival by the critic is none like the devil who has arrived in a business suit. The worst thing that can happen to any business is to get audited. Imagine it this way.

Almost one in 100 businesses get audited every year. It’s a dreadful feeling for the business owners. Audits can be a weary experience for small businesses because of the prospect to owe more taxes within a limited budget.

If you are held liable for the audit without an experienced accounting department to back, you up then it’s to feel as if you are in hot waters.

Hiring the Tax Audit Representation is a good idea at this stage to avoid any blunders or errors in filing for taxes and so on.

Anything could trigger a small business to be notified by IRS like;

●     If a business earns more than $ 1 million (annually) and if your assets aren’t protected.

●     If you fail to report all sources of income.

●     Your business deduction claims are not parallel to your income and so on.

Tips for Small Businesses Getting Audited

In this article, we will cover the basic but top-tier reasons for small businesses being audited.

Even when it’s a random selection, it doesn't mean you need to neglect your duty as a business owner. It’s best to have an IRS Audit Representation hired to let your business avoid the day of the audit.

There are few necessary things to keep in mind;

Say No to Entertaining Events

If you are planning to take on a potential client does this mean you have to go by the standard rule book to win them over? Don’t know what I’m talking about? You do not need a ballgame or a concert ticket to win them over.

Even if you plan to plan something that will put odds in your favor, do it from your personal account. Entertainment deductions are to be made as part of the Tax Cuts and Jobs Act of 2017. So if you are trying to skirt around the whole concept, red capes will come for you.

Mind Your Deductions

All business owners are entitled to make deductions. One thing you should do is that the IRS uses a computer program (Discriminate Income Function) to compare the number and amount of the deductions of similar businesses within your income bracket.

Let say the tax bracket takes 12 deductions and you take twice as much, then you will be hearing from the IRS soon enough.

Make legitimate deductions. A CPA can guide you on an everyday basis for the better handling of financial tasks.

Form an LLC

Incorporations are more organized than small businesses. Financial competence is stronger in incorporation too. To avoid being audited you can try forming an LLC because;

●     Small business owners use their personal assets at most times to pay back the creditors. It can be avoided.

●     Corporations are more likely to secure business loans

●     Corporations take more deductions than small businesses and so on.

Besides, it’s best to file your taxes electronically instead of in a hipster or clumsy writing that will cause hackles to rise. Some business owners may prefer to do the taxes by hand but it’s best to file the taxes online as it also reduces the rate of error.

If you can carry on with these basic tips you might remain safe and sound and far away from the grapes of an IRS Audit.

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