January 09, 2013 /24-7PressRelease/
-- Tips for business owners to avoid tax audits
Many people mistakenly believe that small businesses are less likely than larger companies to be audited by the Internal Revenue Service -- but this is not the case. In fact, the IRS often targets small companies for tax audits. Therefore, it is especially important for small business owners to take steps to protect themselves from the risk of an IRS audit.
Declare all income
As obvious as it may seem, one of the most common mistakes that result in tax audits for small business owners is failing to report their entire income. In many cases, people underreport their income without meaning to -- often as a result of routine accounting errors such as reporting net revenue instead of gross revenue. When errors of this type occur, business owners become more vulnerable to tax audits.
Don't mix business and personal expenses
When running a small business, particularly if it operates out of the home, it can be easy for the line between business and personal expenses to become blurred. However, the IRS keeps a close eye on how business owners draw these expenditures and will audit those who it believes may be reporting them incorrectly. Taking extra care to keep business and personal expenses separate can help prevent a costly and time-consuming tax audit.
To avoid raising red flags that could trigger a tax audit, small business owners should keep separate bank accounts and credit cards that are strictly for business. It is also important to keep detailed records of business income and expenses throughout the year.
Use caution when claiming business tax deductions
Small business owners need to be particularly careful when it comes to claiming tax deductions, because many tax audits occur as a result of deductions that have been claimed incorrectly. When claiming deductions for mixed-use property, such as a vehicle that is used for both business and personal purposes, business owners must take care to deduct only the portion of the expense that actually goes toward running the business.
Deductions for home offices can be even more problematic because the IRS has very specific rules that dictate how and when a home office can be deducted as a business expense. Because many people claim a home office deduction incorrectly, the IRS is on the lookout for violators and is likely to investigate if it suspects the necessary criteria have not been met.
Seek legal help to prevent and defend against audits
When notified of a tax audit, it is wise for small business owners to seek advice from a tax lawyer before moving ahead with the process. An attorney can help business owners prepare thoroughly for the audit to give them the best chance of success, and can work directly with IRS investigators to protect the interests of the business during the audit.
A tax attorney can also help business owners plan ahead by working with them to optimize their tax benefits while minimizing risks of audits. Particularly when restructuring or forming a new business, a knowledgeable tax attorney can be a valuable asset to help business owners avoid common missteps that frequently lead to tax audits.
Article provided by Eno, Martin & Donahue, L.L.P.
Visit us at http://www.ebmdattorneys.com---
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