Is Your Company at Risk of Being Audited By the IRS?

Many small business owners will agree that one of their biggest financial fears is getting audited by the IRS. But, there is no reason to be fearful if you are prepared, and an experienced bookkeeper can help you organize and track the transactions to support the deductions you are making on your taxes.

The likelihood of being audited usually depends on the type of tax return and the nature of the business. Even though the IRS doesn’t publish information about the businesses that are most likely going to be audited, financial professionals have uncovered a few trends. These are a few categories that might be under the watchful eye of the IRS:

  1. Home Offices: If it is a big deduction for a home office, it might prompt an audit. The calculations should be based on the space that is used “regularly and exclusively” for business purposes.
  2. Travel, Entertainment, and Meals: The requirements for these write-offs are strict, and many small businesses don’t keep the proper paperwork for backups. Make sure the write-offs are for business purposes, instead of deducting personal activities without a business reason.
  3. Small Companies: It is common for small businesses to do a poor job of handling their financial systems. Failing to keep good records and ignoring tax laws can result in problems with the IRS. Hiring a small business bookkeeper can help you overcome some of these problems so that you are prepared if an audit occurs.
  4. Failing to Report Income: The IRS receives all W-2’s and 1099’s that you receive, and their computers match the numbers on the forms with the numbers that you report on your taxes. If there is a mismatch, then there is a possibility that your taxes will be scrutinized closer.
  5. Schedule C Losses: In cases where there are high salaries offset by a Schedule C loss, then the IRS might start asking questions. It will need to be determined if it is a hobby instead of a business.
  6. Higher Income: The odds of auditing go up when you are earning more income. It’s not wrong to make more money, but your income has a higher chance of being under scrutiny if you are earning more.

Working with a bookkeeper is one of the easiest ways that you can prepare yourself in case you are audited by the IRS. Contact us at Easier Bookkeeping for more information about how you can benefit from full service bookkeeping: (888) 620-0770

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