How A Business Owner Can Avoid An IRS Tax Audit
Tax season is the toughest time of the year for business owners, no matter how small or big your organization is. At times, you may feel that something worse is waiting for you, probably in the form of an IRS audit. The good news though is that the reasons behind a majority of audits are just small errors or discrepancies. So you need not fear them in the first place; rather being aware and educated can help you sort things out easily. At the same time, you can sideline tax audits completely by filing carefully and avoiding certain red flags. Even if you do receive a notice, you should not panic and get help from an expert attorney to handle the situation. Here are some tips you can follow to avoid an IRS tax audit.
File on time, always
The easiest way to get into trouble with the authorities is by missing deadlines. Failing to file on time automatically makes you an audit target and can create an ordeal for a reason that is totally avoidable. Be sure that you know the last date for filing and stick to it religiously. Set a reminder and double-check with your accountant to make sure that you don’t miss out on the important date. Filing on time prevents the risk of audit and saves you from late filing penalties as well.
Don’t forget to sign the return
This one might seem like a trivial reason but something as simple as not signing your return can land you in deep trouble. It almost guarantees that you will receive additional scrutiny because the authorities will believe that you could have made bigger mistakes in the return as well. Ensure that you double-check the return before sending it so you don’t miss something as simple as a signature.
Be careful with your calculations
Another reason that you may get an IRS audit is mathematical miscalculations on your return. Avoiding it is as easy as double-checking your math. Do it yourself once before filing, even if a professional accountant prepares the return for your business. Besides checking the calculations, cross-check the numbers and ensure that they are consistent everywhere.
Record all income honestly
Tax evasion is a crime and you cannot expect to escape the authorities if you try to hide your income intentionally. Therefore, you should not omit any income from the return, wherever it comes from and however small it is. If you have a doubt, you can discuss your case with an experienced tax attorney for professional guidance. For example, you may have income from your regular job and from a side gig and could be confused about showing them both in the return. A seasoned attorney is the best person to guide you in this context.
Don’t overestimate expenses
Another aspect that you need to be careful about for avoiding audits is your business expenses. First things first, do not overestimate them with the intention to lower your tax liability. Record all your business expenses accurately and honestly and never mix with personal expenses. As a rule of thumb, maintain a separate account for your business so that you have a clean record of business income and expenses at the end of the year.
Claim only legitimate deductions
Tax deductions are a great way to cut down your bill but claiming the illegitimate ones can land you in hot water. Even the ones deducted inadvertently can invite trouble. So you should double-check them before filing and seek expert guidance if still in doubt. Some of the most scrutinized business deductions include home office deduction, meal, and travel and charitable donations. Though you must be careful enough with deductions, it does not mean that you need to skip the ones you can rightfully claim.
Never round numbers
Remember that rounding numbers on your return may seem like a harmless action but the IRS does not think so. They consider it as an action that overestimates the expenses, however small the difference in amounts may be. Moreover, round numbers do not send across a great impression about a taxpayer because the authorities see it as a sign of laziness and lack of precision. So this is the last thing you should do if you want to steer clear of an audit notice.
Avoiding a tax audit does not seem like a big task, provided that you have the right intentions and honest approach. Following these small tips can help you sideline a notice and ensure that your business does not face the wrath of the tax authorities.