10 tips to avoid Tax audit of your Business
The IRS is looking for those that fail to report their earnings made through crypto currency. Although, digital currency is still new but the IRS may need to audit all your transactions.
Internal revenue to audit any business
Most of tax returns are un-audited by some factors can trigger the need for auditing by the the Internal Revenue Service (IRS). The odds are pretty low as less than one percent are affected. The prospect of getting audited is stressful for any business, especially small businesses. The business owner will be required to provide evidences of earnings and expenditure.
Your chances of getting audited can be triggered by the following:
- Filing late consistently – This can attract unwanted attention from the IRS. It is advisable to always file your taxes early enough. Avoid waiting until last minutes to file taxes simply to avoid unforeseen circumstances.
- High Income – The IRS functions to ensure that taxes are paid even by the high earning household. High earners from a business, who are also shareholders, may also attract the attention of the IRS. As income increases, so as the chances of an audit.
- Donating large sums to charity – Sometimes, some businesses give money to charity in a bid to avoid taxes. If at any point in time, you suddenly make a donation to charity, you might appear suspicious. To avoid this, ensure you make reasonable donations frequently.
- Mathematical errors and rounded figures – Sometimes, businesses may be audited to due to a common error that occurs due to the use of rounded up figures in place of the real figures. To avoid this, always work with decimals during calculations.
- Failure to declare taxable income – A big red flag to getting audited is failing to declare taxable income. All businesses are expected to declare all their incomes including those paid into offshore accounts and cash payments.
- Incoherence of income with lifestyle – If your claims about your income do not match your lifestyle, you may attract attention from the IRS. For example, purchasing a million dollar home when your declared income states that you earn $10000. It could arouse suspicions from the IRS.
- Cash Transactions – Verifying cash transactions is very difficult for the IRS. Large cash transactions might also cause concern. This will draw the attention of the IRS. It is advisable to use cash transactions due to its precision and transparency.
- Hiring a poor / dishonest tax preparer – Sometimes, incompetent or dishonest tax preparer may causes problems leading to an audit. If the IRS sees an inconsistent report or filing, they may flag the operations of the business before the filing. You will be held responsible regardless of whether it was caused by your tax preparer. Ensure you check your tax preparer before hiring.
- Repeated report on losses – If your report indicated that your business made losses for a least three to five years , your business will likely be flagged by the IRS.
- If you use digital currencies – According to CNBC, the IRS is looking for those that fail to report their earnings made through crypto currency. Although, digital currency is still new but the IRS may need to audit all your transactions.
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