At Ferguson, Timar & Company, we’ve found that sometimes business owners are confused as to what happens when their business get audited. It does not mean the IRS is out to get you or that a huge tax bill will be the result. Instead, it simply means a further review and examination needs to be performed. If your information is incorrect—or worse, falsified—they will analyze your tax records more thoroughly and determine the proper tax amount that should be paid.
The good news is that if you keep really good tax records, especially relating to any business expense deductions and income reporting, you should be in good shape. If not, then the process can be more difficult. It should go without saying that falsifying information, trying to write off ineligible expenses or not reporting all your income are all bad ideas. Any of these mistakes can lead to audits and you’ll have a tougher time trying to justify your tax returns.
Audits are designed to keep the tax system fair for all individuals and business owners. If you are a small business owner being audited, here are some tips to consider:
- Make sure your lifestyle reflects your reported income. If you report little income, yet live like a rock star, it will look suspicious.
- Be careful with deductions for auto expenses as they relate to your business, especially if it is your only car. Only report business-related expenses and keep detailed mileage/maintenance records. The same goes for all travel, entertainment and meal costs you deduct for your business.
- If your business deals with a lot of cash transactions, you may undergo more scrutiny from your auditor. Make sure you are honest and detailed with your cash transaction records.
- When you have employees, be sure to file proper payroll tax forms and payments.
- If you work from home and are writing off certain living expenses, be careful. Understand what is eligible for deduction, what percentages are allowed to be deducted and keep all bills/receipts readily available.
When it comes to your small business, an audit can be a big disruption. However, it is not the end of the world unless your tax returns are way off. It is wise to hire a professional tax preparer or CPA firm such as Ferguson, Timar & Company to handle your business taxes properly. Or, if you are facing an audit from the IRS or California Tax Board, Ferguson, Timar & Company offers expert audit services to help you deal with everything related to the audit.
Let’s face it, whether you are already dealing with an audit or you are a small business owner looking to avoid one, it pays to work with a professional who will file your returns properly and guide you through the tax process. That’s Ferguson, Timar & Company. Contact us today for more information about small business taxes.
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