How Your Business Can Avoid A Tax Audit

As a small business owner, you have a lot of worries and responsibilities that you have to deal with on a daily basis. The last thing you probably want is another hassle, like a tax audit. While you might keep exceptional records and file everything away accordingly, a tax audit can still be extremely stressful, because there is always a chance that the IRS could accuse you of cheating them. Maybe you forgot to report some income or maybe your unemployed son has been living in your home office. Whatever the situation is, your best bet to avoid this nightmare is to try avoiding a tax audit altogether. Here are some essential tips to hire a reputable tax preparation firm.

Be Weary Of Reporting A Loss Every Year

It is never fun to come up with negative profits at the end of the year. However, what most small business owners don’t know is that if they report a net loss in more than two out of five years, there is a good chance that they are going to get audited. This can be a bad thing, because the IRS will declare your business a hobby, which means you won’t get to claim your business expense deductions.

Be Extremely Careful When It Comes To Salaries

If you are a small business that has a few employees on salary, you have to be very weary about what you are paying those employees. Some business owners will grant their employees’ higher salaries, so that they can claim it as a business expense and deduct it from their taxes. Unfortunately, the IRS looks for these tactics and if you are spotted it could open your business up for a tax audit. To avoid this always pay your employees a reasonable salary for the industry that you are in. To get more information conduct an online search.

Avoid Typos

In the past, consumers were forced to complete their taxes utilizing paper forms and pen. While this method worked efficiently for that time, it left plenty of room for error. Unlike humans, computers are designed not to make errors. However, humans are still inputting the data into the computer program, so there is still plenty of room for error when filing tax returns.

The best way to avoid these errors is to utilize copy and paste as often as possible. Also, when you input a number into the digital tax form, you should check it several times to make sure it is correct.

Once you complete your tax returns, it would be wise to compare the numbers on the form with the numbers on your 1099 or W-2. This will help prevent error and give you peace of mind, in knowing you have done your best to be honest with the IRS.

Reporting Low Income

Tax audits are very profitable for the IRS, even though they require a lot of resources. One of the best ways to avoid an audit on your tax returns is to never report insignificant income. This is a red flag for the IRS, which will do whatever is necessary to proof that real income exists. The IRS will not only work to prove that real income exists, but also penalties and unpaid taxes on that income.