How to keep your small business from getting audited
If you own a small business, there is a good chance you don't have any money or time to spare. Audits will take most of the spare you have got, and maybe then some.
Make sure that you are doing what you can to avoid auditing. There are some keys that can help prevent an audit.
Be a good records keeper. Have original receipts and have them in order. It is also a good idea to keep records for at least seven years, the IRS has a long time to come after you, make sure you have yourself covered. Be able to substantiate your claims.
Make sure that you are filling out your tax forms right. Be sure to double and triple check for errors and make sure you have filled in all of the spaces. Blanks leave questions for the IRS.
Be honest in reporting your income. Report all of your income fairly. One of the biggest reasons the IRS will look at a small business is because it looks like you aren't reporting all income. If a salary looks too high or too low, you will be looked at.
There are guidelines set out to help you with your accounting, follow them. There are a couple of different options it is best to pick one and stick to it.
Watch your tax write-offs. It is okay to claim your legitimate expenses, but be careful. Anything that doesn't seem "necessary and ordinary" will be looked at twice. Be very careful in the travel and entertainment categories especially. They will be looking to see if they were really business related.
It is always advisable to use an accountant. They know what they are doing. They may be able to see things you would have missed as well as catch mistakes that you may have made.
Be sure you are paying payroll taxes. If you are wrongly claiming your employees for independent contractors you will be fined. Be honest about your payroll.
If you are a sole proprietor you are a very good target for an audit. This really isn't something that can be avoided, but be sure you are being extra careful.
It is a good idea to electronically file your taxes. They are more likely to go in without error.
One of the tricks that can help you is, if you are receiving a return file early. If you are going to be paying, you can file a little later. That was later, not late. But if you are going to need more time for your taxes, file for an extension. It is better to avoid the penalties and fees.
Another thing that will give a little bit more of an edge, try to use a computer to fill out forms. There is more room for error with hand written forms and they are more likely to take a second look.
Don't be shy about giving to charity, it is a very noble act. But be careful with claims, try to get receipts from the charities you helped out.
Get the auditors point of view. The auditors' guidelines for the IRS are available on their website. See what they will be looking for.
There is now way to guarantee you will stave off an audit. Know that you are doing everything right so that an audit will find nothing out of the ordinary. Be an honest tax payer, it's really the lawful thing to do!
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