If you own and run a small business, the last thing that you want to deal with is an audit. Sometimes, this will happen because they have randomly selected you as an audit candidate. However, most of the time, you can avoid getting audited if you follow the right steps that will ensure you aren’t flagged. Mark Dicus & Company is here to talk about some of the things small business owners can do to avoid getting audited by the IRS.
Keep Shareholders Satisfied
If you are running an S-Corp, you need to make sure you’re paying yourself enough. This is the number one reason that small businesses end up getting audited. While some small business owners will try and get away with paying less in taxes, it won’t end up working as you will wind up getting audited instead. If you have any shareholders that are also employees, you need to make sure they are getting well compensated as well.
Do Not Take Maximum Deduction for Small Business
Deductions can be a valuable tool when you have your own business. You definitely want to take advantage of all the deductions that you qualify for. However, don’t go overboard. You should definitely avoid stretching the truth when it comes to your deductions. Only take the deductions that are relevant to your business. Auto expense and home expense deductions are two that can easily get you in the hot seat.
It is a Red Flag if Your Business has Never Made a Profit
When you’re first starting your business, it is completely understandable that you may not make much, if any, profit. After those first couple of years, the IRS is going to expect you to start earning some money. If you don’t and are continuing to report nothing but losses, they are more than likely going to want to take a closer look at how you’re doing business.
Neat & Tidy Math is Important when Running a Business
When you get sloppy with your math, you also run into trouble. If your numbers are looking suspicious, the IRS will want to know why. Make sure all of the numbers on your forms aren’t coming up with rounded numbers or other suspicious things like that. If numbers aren’t your thing, you may want to have someone help you get those forms ready before you file.
Have a Reasonable Number of Cash Transactions
You may work in a field where cash transactions are going to be your main source of income, but when you do this the IRS is going to want to take a closer look. If this is the case for you and there is nothing you can do about it, make sure you are keeping detailed books. If you get transactions that are over $10,000, make sure you’re reporting them on Form 8300 within 15 days of the transaction.