No one wants to be audited. Make sure you are taking the necessary steps.
If you have been through an audit, whether on personal or business, you know that it can be incredibly stressful and time-consuming. As small business owners, we all know that time is limited and time is money. Make sure that you are filing your taxes in a way that can help mitigate the chances of you being audited. Here are five tips to follow to help lower your chances of being audited this year.
- File your taxes on time and wholly – First and foremost, you need to file your taxes on time and with all needed forms and information. On time can mean filing by your extension date as well, as long as you file your extension before the due date. Avoiding delays and missing information when filing your taxes can help eliminate red flags for the IRS.
- Report the correct information – Make sure that the information you are reporting is correct. Whether you are reporting 1099s, different trading accounts, schedule C’s, W-2’s, or any other income, you need to make sure your numbers are correct. Your numbers are not the only way the IRS verifies tax information. The IRS verifies your information against other institutions. Make sure you are reporting information that is going to match up. Discrepancies in reporting are one of the biggest causes of audits for independent contractors and small businesses.
- Don’t abuse deductions – Deductions are an amazing way for businesses to save money on taxes. The government gives those deductions as an incentive, but too often small businesses abuse this opportunity. Only take the deductions that are applicable to your business. For example; the home office deduction is terrific if you actually utilize a home office for business. The home office deduction has become somewhat of a red flag because a lot of small business owners take this deduction without having a home office that they use.
- Don’t report a loss every year – If you report a loss in 2 out of 5 years, you will increase your chances of an audit drastically. It is understandable that not every year is good for business but reporting a loss every year can show you as a hobbyist rather than an actual business. If you are labeled as a hobbyist rather than a business, your business deductions could be suspended.
- Use a professional – Filling your own business and personal taxes is a cost-efficient way to file but the cost of filling your taxes incorrectly could be a lot greater than paying for a tax professional. Using a tax specialist that understands business taxes is incredibly beneficial. They can help you submit on time, submit the correct information, take the deductions that you qualify for, and avoid major red flags that could cause an audit. With the correct tax specialists, you could save your business a lot of headache, time, and most importantly money.
If you have questions about your business taxes or any audit red flags, our specialists here at Prime Corporate Services are here to help. Make sure you are filing your taxes correctly to drastically decrease your chances of being audited. Request a consultation today to speak with an advisor.