Taxes for Entrepreneurs Limiting Your Audit Risk
Posted by Pierre de la Fortune on August 11, 2015 @ 12:01 a.m.
Written by Duncan Connor
1. Make your business a business, not a hobby. If you are in your third year of business and reporting a third year of losses, thatís going to raise a red flag with the Internal Revenue Service. Despite what you might think, the IRS isnít evil, and if you show them the evidence, theyíll understand that youíre a loss-making small business -- for a while. If youíre in year four and still making a loss, expect a call from the IRS about when you plan to start earning money.
2. Report your income accurately. If a client pays you $3250 for a service you provide, and you round that down to $3000 while your client reports the actual number, thatís a red flag, too. It tells the IRS that youíre not keeping accurate records -- and they do cross-check that stuff.
3. If you use a CPA or tax preparer, understand what theyíre doing and why. If youíre uncomfortable with something, ask them to explain it till you are comfortable or they do it your way (as long as itís legal.) Why would you do that? You do it because youíre responsible for the accuracy of your companyís tax return, even if someone else prepares it -- and that means that you, not your preparer, will be liable for any additional taxes, interest charges, and penalties if you get audited. If your tax preparer promises to save you a huge amount of money, donít trust it. The only way to save huge amounts is to cheat.
4. Prepare to be audited from the first of the year to the last. If you keep your receipts, journal your expenses and mileage as they are incurred, and keep accurate records of your income, youíll be able to show that youíre not guessing at your numbers. Show the IRS auditor that you canít get the easy stuff right and youíre just inviting a more thorough examination of your finances. Mark Green, IRS Spokesperson for Georgia, told company.com that keeping good records of expenses as you incur them is ďa mustĒ for all businesses.
5. ďPay estimated taxes if youíre a sole proprietor or independent contractor. Pay them on time, and keep them current.Ē Green said.
6. Donít ignore notices from the IRS. If the Feds are trying to get your attention, answer them while itís still a polite cough. If theyíve to come to your door already, youíre in trouble.
7. The IRS publishes a ďdirty dozenĒ (yes, itís called that, you can Google it) list of the top 12 tax scams that theyíre going to be looking for on tax returns. Do yourself a favor -- make sure you havenít involved yourself in any of them. If you have, be prepared to admit it and face the possibility of an audit and penalties. You canít get out of paying taxes. No way, no how.
8. Your business has employees, and youíve been withholding taxes from their paychecks to pay the IRS. Itís been a tight month and you have bills to pay, so you think you might just borrow from the withheld taxes and pay it back next month. And then you do it again a month later. And again. Before you know it, youíve borrowed all the taxes you were supposed to send to the Feds, and youíre still not earning enough to pay it back. DO NOT borrow from the taxes your employees have been paying, no matter how tempting it may be. It can get your business levied out of existence.
9. The IRS isnít stupid. It has a pretty good idea of what a reasonable range of dollars for your businessí taxable deductions should be. If your company earned income in the lower end of the range and took tax deductions in the higher end of the range Ö then see item #1. The IRS is happy for you to take business deductions but if you have a yard service and you want to buy a crop sprayer plane to put down Weed-B-Gon on your clientsí yards, youíre probably going to get audited.
10. Donít try to claim credits youíre not entitled to. Do you let your sales team drive around in commercial farm vehicles? If not, youíre not entitled to the Fuel Tax Credit. And if you didnít hire any recently released felons, you need to look at other reasons to claim the WOTC for the additions you made to your workforce this year.
For more info please visit: http://www.company.com/article/tax-irs-estimated-tax-accountant-cpa-audit/127
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