IRS Audits Small Business Owners

When auditing small business owners, the IRS will look to see if you have done any of the following:

 1.       Under-reported Income:

Unlike a typical employee whose taxes are withheld from his/her wages/paycheck, you are a business owner with no withholding.   You may be tempted to underreport how much you earn in order to pay less taxes – particularly if you run a cash business.  Resist the temptation!.  The IRS is trained to probe for unreported income – particularly when gross receipts appear below average for your type business or when gross receipts are not in line with reported expenses.

2.       Illegitimate Tax Deductions Claimed:

Don’t claim that your trip to Orlando was a legitimate business expense –when in fact it was a family vacation  to Disney World.  There are plenty of legitimate deductions you are entitled to!  When you claim an obvious family vacation as a business expense, it causes the IRS to suspect all of your business deductions are personal.

3.       Improperly Documented Deductions:

Poor record keeping is the primary reason small business owners lose deductions when audited. Without proper documentation (canceled check, receipt, etc.), the IRS may reduce the amount you claimed – either in part or entirely!

Bonus Tip:  Poor record keeping costs you money as your accountant will surely bill you for the hours he spent sorting through your messy records

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