Is Your Company at Risk for an IRS Audit

Is Your Company at Risk for an IRS Audit?

An audit can be a stressful and unpleasant situation to deal with, and many small business owners are worried that the IRS might audit their financial records. The likelihood of auditing varies depending on the type of business that you have and the numbers that are coming through on your tax return, and it is essential that you work closely with an accountant at all times. An experienced accountant can help you to avoid the audit in the first place, and they can assist with the required tasks if an audit occurs.

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Business Categories with a Higher Risk of Audit

The IRS does not share information about the types of companies that they audit. But, there are a few trends that have been noticed and it seems like certain categories have a higher audit risk. These are a few red flags that might potentially trigger an audit:

  • Small Companies: Generally, small companies don’t have good systems in place for financial tracking and records. It is also likely that the company doesn’t have a financial professional to help them stay in compliance with tax laws. The audit rate might be even higher if the company receives most income in the form of cash.
  • Business Travel, Entertainment and Meals: It is essential to have the paperwork to back up these expenses, and most small businesses don’t keep the proper records. If you are writing off large sums for business entertainment and meals, then the IRS might thing that you are writing off personal entertainment and calling it a business expense.
  • Schedule C Losses: Do you have a tax return that shows a high salary in conjunction with a Schedule C loss? This situation might be a red flag to the IRS. Typically, a Schedule C activity is a hobby instead of a business, especially if the activity is a personal pleasure, such as travel writing, photography, sports, etc.

IRS audits can be unexpected, and the best thing that you can do is hire a good small business accountant to ensure that you are staying within the tax laws. Prevention is the best solution, to help you avoid problems if your business is audited.

Here at Easier Accounting, we are experienced with all types of small business finance. We are here to help with anything that you need, and we invite you to contact our team to learn more about the services that are available. Call us right away: (888) 620-0770

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