When it comes to taxes, each of us is afraid to make a wrong step which may become a reason for a tax audit within a business. However, compared to previous years, the IRS audits are less common. If you want to protect your business from any possibility of getting an IRS tax audit, we have prepared the most common reasons of getting audited by the IRS that you have to consider when you are preparing your annual tax return.
Report All Your Income!
According to United States tax law, both companies and individuals which hire an employee have to report payments both to the employee and to the IRS. Generally, the IRS is provided with copies of all of the W-2 and 10-99- MISC forms which are filed by organizations for employment. If you hide the income that IRS is already aware of, you risk getting a tax audit.
Too High or Too Low Income!
As practice shows, higher-income taxpayers are more prone to get an audit. That’s because the IRS is in non-stop searching of those who have high income and avoid paying taxes. So, if your annual income is more than $1 million, the possibility of being audited is too high.
If you used to grant large donations, be prepared that the IRS can ask you to provide proof of all donations you made. Therefore, when you make donations, try to ensure that an organization which you are going to help will provide you with all the necessary documentations as evidence of your donations.
A Cash Business!
Keep in mind that large transactions within your business may become a reason of being audited by the IRS. Another reason which may trigger an audit is if you used to make large cash deposits in your bank account.
Deduction of Entertainment Expenses
Generally, self-employed taxpayers are in a dangerous zone of being audited, since they are provided with more options when it comes to reporting their income and expenses for the year. Unfortunately, there are lots of unfair tax payers who include the costs of travel, meal and entertainment in their expenses. As a result, they are being audited by the IRS. Therefore, if you intend to include such expenses in your tax return, try to make sure that you can accompany them with all the necessary documents proving those expenses.
Don’t Claim Home Office Expenses!
There are several rules that you have to adhere to when it comes to home office deductions. So, if you are going to deduct home office costs, keep in mind that you are allowed to deduct the space which is used for business. Otherwise, you risk meeting the IRS in front of your home office. You can read more about different types of deductions in this blog.
Don’t Use Your Car for Business!
The IRS has strict requirements concerning reporting vehicle expenses. So, if you have only one car, it is too suspicious for the IRS that you use this car only for a business. It may become especially suspicious for the IRS if you do not have a private car.
A Hobby Business!
If you have a hobby which also brings you some income, you have to keep in mind that you may receive some expenses along with that income as well. So, try to be extra careful when it comes to deductions for your little business. Find the best standard deductions for 2021 by reading our blog.
An audit is one of the most unpleasant things that could happen to every taxpayer. If you want to avoid it, then you have to implement several actions in order to protect both you and your business from such kind of issues.
One of the best ways to reduce the possibility of receiving an audit is working with professional tax experts who can help you circumvent all issues within your business. At Prestige Auditors, we always ready to help you boost your revenue and stay within the IRS’ requirements. We suggest you visit our website where you can find detailed information concerning our services.