For many business owners, the idea of an IRS audit seems like your worst nightmare. Anytime the IRS thinks that something isn’t right with your business earnings and tax documents, you could be facing an audit. This is a close look at all of your financials and business practices to ensure there aren’t any errors that could result in more tax money. Mecham Dicus & Company is here to share some red flags that could lead the IRS to perform an audit on your business.
Is there a Limit on Itemized Deductions?
For business owners, it is usually advantageous to take itemized deductions rather than standardized deductions. The way that the IRS keeps tabs on the amount of deductions that your business should be taking depends on the tax bracket you are in. They know about how many itemized deductions a business in your tax bracket should be taking, and if you exceed that number they may want to take a closer look at things. As long as you have done everything you should and aren’t breaking any rules, you should be fine.
Sudden Loss of Income
Based on your experience, years in business and the profession you are in, the IRS knows about how much you should be making each year. This is especially true if you have steadily been making more and more each year for the past several years. When there is a sudden drop in your income, this is a red flag and could result in an IRS audit. There are obviously some things that could cause you to bring in less money than you have in years’ past, but you do need to be ready to explain those reasons.
Unusual Tax Deductions
One of the main benefits of being a business owner is the amount of tax deductions that you have as opposed to the regular tax payer. You can deduct things like business travel expenses, office supplies, business meals and more. However, some business owners can take this too far. It is important to note that you should always keep imaculate records of all your expenses that you plan to deduct so that you can explain each and every one of them in the case of an audit.
Earning a High Income
If you are earning more than $200,000 in a year, you are much more likely to be audited. In fact, you are four more times more likely to be audited than those that earn lower than that. There isn’t much you can do about this, other than know it could be coming and have all your ducks in a row.
Tax Planning Strategists in Summerlin, North LV, Henderson, Lone Mountain Village & Greater Las Vegas, Nevada
Keeping all of the financial records and tax documents organized filed correctly so that you can avoid an IRS audit. At Mecham Dicus & Company we will ensure you are as protected from this as possible. We have the experience and the training to ensure your taxes are done right. Call us today!