If there’s one word that absolutely no business wants to here it’s “audit”. Yet, according to several reports, currently 1 in 100 companies that earn more than $200,000 find themselves having to go through the experience of the IRS double-checking their financial records based on some of the red flags that they see when many businesses file their tax returns each year.
In order to prevent your company from being a part of that statistic, we’ve provided you with a list of five ways that you can prevent your business from being audited below:
Hire a reputable professional. Although you can get good professional assistance for free if you make less than $51,000, if you happen to earn more than that, we recommend that you hire a tax preparer. That’s because they are trained to look for deductions that you may not know about otherwise. Just make sure that they are reputable and come with several referrals. You don’t want someone who manipulates your numbers because after a couple of filings, the IRS will notice.
Keep your hobbies out of it. Any expenses that are directly related to your business, whether you have an office outside of the home or one at home, should be deducted. If you would like to see a comprehensive list of some of the expenses that apply, you can do so by visiting Bankrate, Nolo and of course, IRS.gov. All you need to do is go to their websites and put “deducting business expenses” in the search field. However, make sure that anything that is a hobby or leisure activity is not factored in. In other words, if an expense is not ultimately helping your company to make a profit, it’s not something that the IRS is going to consider to be a business expense. Leaving it off will increase your chances of being audited.
Have an answer ready for any question. Something that also sends up a bit of a warning signal to the IRS is charitable deductions; not because you are not allowed to have any but when they are fairly large, they usually want to know the story behind them. So, if you have a lot of charitable deductions listed on your tax return, just be prepared to answer any questions that the IRS might have regarding them.
Be very careful with your state returns. If you were to ask an accounting firm like Accounting Freedom for advice, one thing that they might mention is that it’s important to remember that taxes are reported on both a state and federal level. Sometimes we forget that when we’re filing our returns. That’s why you need to take your time doing your taxes. If you end up getting audited by the state, you can be rest assured that you will be by the federal government too.
Consider e-filing. Here’s something that might surprise you. If you think that it’s better to mail your tax returns, think again. According to the IRS, you’re actually far less likely to make a mistake by e-filing. And of course, the less errors on your tax return, the less of a chance that you’ll experience an audit. Plus, it’s safer and cheaper too. For more information on e-filing your taxes, go to your favorite search engine and put “e-file tax returns” in the search field.