This week, the nation’s leading tax expert Brian Compton, president of Tax Resolution Services, chatted with Caz Taylor and Ruben Garcia on SBA Radio to share some great tax help tips for small business owners on how to avoid IRS audits.
As the tax filing deadline draws nearer, many small businesses already struggling with the state of the economy must face yet another challenge–filing and paying taxes.
It has been reported that 75% of the entire taxpaying public is terrified of the word “audit.” But the harsh reality is, with the government strapped for cash, IRS audit rates are climbing–especially audits on the very same small businesses that are barely keeping their lights on.
The IRS “Rationale”
So why ARE small businesses such a main target for IRS audits?
Small businesses have a lot of activity that may not get reported directly to the IRS through third parties; receipts and sales that the business receives go directly to the business bank account and typically get verified later with a 1099 or a W-2. Due to this lack of an overarching system of supervision, there are more gray areas and “loopholes.” This is why small businesses make a prime hunting ground for the IRS to go looking for more revenue.
Top Audit Trigger Points to Watch Out For
1. Payroll Taxes–many small businesses struggling to survive find it very tempting to “borrow” from their payroll tax deposits. In a rough economy, this is very common–small business owners that are not getting enough incoming revenue to pay for their operating expenses must find a way to keep their lights on. So they turn to “borrow” from their payroll tax deposits. This starts off small but can turn into a downward spiral when 6, 8, or 12 months down the line, they are still tapping into their payroll tax deposits. This is how they get into deep IRS payroll tax problems.
Before they know it, they receive a letter from the IRS and that’s when the IRS will come down hard on these business owners. It is not uncommon for the IRS go into business owners’ bank accounts and grab their receivables–which means as business owners, you no longer get your cash inflow until you pay up Uncle Sam what you owe him.
Trust me, you do not want to end up there. If you are having payroll tax problems, get tax help now from a tax attorney, CPA, or Certified Tax Resolution Specialist today!
2. Improper Deductions-Small business owners sometimes claim too many deductions and that can get them in trouble if they don’t have the supporting documentation to back these up. The IRS has a system where they will issue a DIF score to taxpayers. This DIF score is a very secretive method the IRS uses to calculate your expenses versus your income in order to determine if you’re claiming abnormally large deductions. The higher your DIF score is, the more likely it will be that you are going to get audited.
The IRS goes through thousands and thousands of tax returns every year to determine what they consider to be “industry standard” or the national average. If your deductions far exceed this amount, you’ll draw attention to yourself for an IRS audit.
Some people may not know this but if you are being audited and you don’t show up to that audit with your auditor because you’re scared and you don’t know what to do, the IRS can actually disallow ALL deductions that you claimed on your tax return. This will extortionately inflate what you truly owe them and you will end up in deeper financial trouble than if you were to resolve your tax problems head-on.
If you’re getting audited and you have no idea what to do next, hire a tax attorney, CPA, or Certified Tax Resolution Specialist to fight with you. Their expertise in working with the IRS and their knowledge of the tax law will maximize your chances of winning a tax settlement.
Another good way to go about it is to make sure that you have the documentation to substantiate all your deductions. Otherwise, you can hire the best tax attorney there is and you won’t have a winning case against the IRS.
3. Mathematical Errors-Mistakes happen and the IRS knows this–but that won’t stop them from auditing you if your claims on your tax returns don’t match up with your W-2 or 1099. Usually this is a relatively easier fix as you will just get a letter from the IRS telling you what you reported, what your W-2 or 1099 says you should have reported, and what you actually owe.
What Can Small Business Owners Do?
1. Make the Most of Your Allowable Deductions-Use tax-filing software programs if you need to but take advantage of all of your allowable deductions. Software programs like TurboTax help give you hints and pointers along the way so that you can deduct as much as you are entitled to–such as charitable donations, business expenses…etc.
2. Look into Tax Credits-The economic stimulus package has some great tax credits that you may qualify for. These tax credits are there to help you through this tough economy; take advantage of this opportunity and see where you can save some extra money.
3. Keep Good Tax Records-You can hire the best tax attorney out there to fight for you but if you don’t keep good records of your taxes and expenses, you will not have a winning case against the IRS. Keep your tax records for SEVEN YEARS–this way, if you get audited down the line, you’ll have all the documentation you need to build yourself a good case.
4. Don’t Miss Your Filing Deadlines-whether you’re self-employed or not, you need to file your taxes on time. Make sure you pay your estimated quarterly taxes and don’t file late. This will ensure that you don’t incur any IRS penalties and interests that will only add to your tax bill.
5. Hire Good Defense-If you’re in IRS trouble, don’t fight it alone. Make sure you are doing everything you can to maximize your chances of winning against the IRS. Hire a tax attorney, CPA, or Certified Tax Resolution Specialist who won’t take “no” for an answer and knows the tax law inside and out. It’s your financial future–don’t gamble your chances against the biggest collection agency in the world.
Tax Resolution Services is a team of expert tax attorneys, CPAs, and Certified Tax Resolution Specialists who are here to help you with your tax problems. Call our office today at 1-866-IRS-PROBLEMS for a free tax resolution consultation or visit www.taxresolution.com
Related posts: