Internal Revenue Service (IRS) conduct an audit to ensure that an organization’s or individual accounts and financial information are reported correctly according to the tax laws and to verify that the reported amount of tax is correct. While large businesses are audited more often, small businesses have also an equal chance to be selected. Here are the four red flags you should know that may trigger the IRS to audit you.
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Writing off Personal Expense as Business Expense
Your business expenses that are ordinarily and necessarily incurred are qualified for a tax deduction. While personal expenses can never be claimed as business expenses hence not tax-deductible.
There is a danger in mixing up personal and business expenses. Aside from making your financial record pretty messy, mixing them up may put you at a major risk for an IRS audit. So, make sure to sort out your expenses from your business expenses. Keep a separate debit or credit card for business and personal use. If you have an expense that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts immediately, not later. And always keep documents of all your business expenses, physically and digitally, to present as evidence when the IRS looks for them.
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Errors on IRS Forms
When you are rushing or thinking about many things while preparing your income tax return, there is a high chance that you may make mistakes. Committing mistakes is risky and can be very costly. Incorrect information or even just a simple math error can raise a problem later on. Before filing your income tax return, always check your information, figures, and calculations several times. If you are using software to file taxes, be sure you have a thorough understanding of how to use it. If you are not familiar with the software, it is best to hire an Enrolled Agent (EA) to help you get everything done correctly EA is the highest credential the IRS issued to a professional tax preparer.
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Workers are Misclassified
People who work for you can be classified as your employee or an independent contractor. The difference between the two is that you will withhold tax from an employee salary but not to an independent contractor, as they are responsible for remitting their taxes. If you have many workers you may misclassify them and that might cause an IRS audit. The risk here is you may be penalized for misclassifying employees as contractors to avoid paying payroll tax.
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Failing to Meet Tax Deadline
You need to make sure that you meet all deadlines, not just your yearly tax return. Make a list of tax schedules and be updated all the time.
If you’re looking for someone who can help you with your tax preparation, FAS Bookkeeping and Tax Services offer professional services with dedication and passion to valuable business owners like you. Let our Enrolled Agent handle your tax preparation and contribute to your business success. Contact us today at admin@fas-accountingsolutions.com or 832-437-0385.
