Some pointers to help your small business avoid a tax audit
Be Wary of Rounding Off Numbers.
Rounding to the closest whole dollar is totally okay, but that's as far as you can go with this kind of calculation. It is important to note that if you paid yourself a salary of $60,005.32, you must record the amount as $60,005. If you round up to an exact sum of $60,000, the Internal Revenue Service may knock on your door.
When claiming vehicles for business use, be prepared to provide documentation.
If you claim that a car is being used only for business purposes and do not have another vehicle for personal use, you will need to keep meticulous records. Keeping track of the distance and reason for each journey will allow you to record the business purpose of all of your travel miles over a year.
Independent Contractors Should Be Handled With Care
According to the Internal Revenue Service, when a worker is classified loans an independent contractor, they are quite specific and comprehensive in their definition. If you have independent contractors in the same organization as your workers, this might result in an audit being conducted. If you are unsure about a worker's tax status, you should get counsel from a tax attorney or certified public accountant. You may also submit a Form SS-8 to the Internal Revenue Service to get an official judgment.
The File Is Received on Schedule
True, the IRS has regulations limiting what happens when you submit a tax return late, and although the first penalty may not seem too severe, late filing is a trigger for the IRS's collection efforts. If you frequently submit late returns, you will raise the likelihood of being audited by the Internal Revenue Service. Preparing accurate records in a timely way can help you avoid falling prey to temptation. If you don't have the time or the necessary expertise to handle your accounting tasks on your own, it's a good idea to hire someone to perform them for you. The most effective strategy to guarantee that you submit your taxes on time is to make preparing them exceedingly short and simple.
Paying unreasonably high salaries is not acceptable.
Several people have been accused of paying very high salaries to shareholders who work in the firm to decrease the tax burden imposed on the company. Make certain that the wages provided to shareholders are consistent with industry norms to avoid any possible problems.
If you're doing everything correctly, there's always the possibility that you'll get audited at some point. Develop a mentality that is prepared to face the worst-case scenario. Prepare as though you were subjected to a yearly audit, and maintain meticulous records of your transactions. If the Internal Revenue Service calls, you'll be pleased you did.