With the holiday season here, tax season is just around the corner. No small business owner has ever said that he or she wants to get audited. It’s not an enjoyable experience, and it involves a lot of time and energy. The easiest way to not get audited is to avoid common business Accounting red flags that could potentially draw some attention, but you might be wondering what those red flags are. Accountant Randall Dang has worked on tax preparation for many different businesses of all sizes. Here are a few tips he would offer to help a small business owner avoid an audit:
Not Keeping Meticulous Records if You Make a lot of Money: You’re more likely to be audited if you bring home a lot of money. For example, if you make a million dollars a year or more, you’re ten times more likely to be audited than if you made $200,000. This is why it’s extremely important to keep records so you can justify everything you report on your taxes.
Taking Extraordinarily Large Deductions: Another easy way to get audited is to have glaringly large deductions in comparison to your income. You’re certainly allowed to take deductions, but if you are deducting fifty percent of your income to charitable contributions, someone might start asking questions about the validity of that claim.
Claiming Business Losses Every Year: Every business, especially in the first few years, could experience business losses. However, if it happens year after year, agents might start asking questions to make sure you aren’t taking too many deductions and misrepresenting your business’s performance to get out of paying taxes.
If you are scared of getting audited, just remember that audits occur very rarely. And if you are not actually trying to commit tax fraud, you should be alright as long as you keep good records. And if you’re unsure of your ability to do your business’s taxes, you can always hire an accountant like Randall Dang, who can help you file your taxes correctly.