Small Business Tax Advice to Keep the IRS at Bay

Small businesses are ten times more likely to be audited than large corporations, so good business tax advice is key come tax time. Because small businesses are so likely to be audited, it is key to prepare your taxes well so an audit will go smoothly, if it comes to that. There are several red flags that small business raise, and by avoiding those, your audit chances will decrease.

Use Tax Software

Tax software decreases mathematical errors. Audits can occur because you simply added incorrectly, making your entire return incorrect. By using software and printing out your return instead of handwriting it, then you will reduce your audit chances.

Don't E-File

Electronic filing makes auditors have instant access to all information on your return. By printing and mailing your return, the IRS has to hire temps to sort and file them. Because of the time it takes to process all of these returns, there is a good chance your return will never even get glanced at.

Keep Immaculate Records

If you are audited, you will want to produce records immediately and show that your return was factual and end the audit. With poor records, you will end up owing money to the IRS. Keep every receipts, credit card statement, bank statement, 1099 or any other supporting document for the full three years or longer.

Be Wary of the Home Office

The home office deduction is a huge red flag for audits. You must follow the guidelines for what is allowed as home office. It must be a completely separate area in your home, not just a corner in the kitchen. It must be solely used for business purposes and the primary area you do your work. With the home office deduction you can deduct utilities, mortgage and tax costs and repairs on your home. If you truly qualify for the deduction, then take it, but be prepared to prove it to the IRS later.

Don't Be Vague

Don't use miscellaneous categories when explaining deductions. Some auditors may be confused about what you are claiming and audit you. Where if you had just explained what the deductions were then it could have been avoided.

Don't Mix Business and Pleasure

Trying to write off vacations and meals out with your spouse as business deductions will get you an audit for sure. If your line of work requires entertaining clients, then by all means write off the expenses. There are guidelines off these write offs and following them will keep auditors at bay. Also, trying to write off car mileage as a business expense when it is really for personal use, is a trick the IRS is keen to. Keep business and pleasure separate and keep it honest. Being truthful will help you and your business in the long run.