‘Oh I just love tax season’, said no one ever…
This is even truer for small and large businesses, that do anything and everything to ensure the dreaded IRS doesn’t put the business in their targets. Yet tax audits happen to good businesses for stupid reasons and mistakes.
In fact the IRS audited just over 1 million individual income tax returns during the 2016 fiscal year, seeing a sharp 16% decline from 2015.
Tax Audit for Your Company – When and Why
Nothing is sinister about an IRS led tax audit. It is simply IRS double-checking your numbers, making sure there aren’t any discrepancies in your tax returns.
There is no need to worry if you have nothing to hide and have mentioned everything as it is on the tax return forms.
However, sometimes people consciously try to cheat the system which is why the IRS has heightened its procedure concerning tax audits. Following are some red flags that make an IRS audit compulsory:
Claiming too Many Charitable Donations
You are eligible for well-deserved deductions if you have made significant charitable contributions. However reporting false donations will get you into hot water with the IRS!
It doesn’t make sense to claim a charitable contribution if you don’t have possession of the proper document that validates the contribution and the claim.
Filing International Returns
You will be raising a lot of eyes and questions, led by the IRS, if you are mailing your tax returns from the Cayman Islands or some other exotic tropical island (or anywhere really). In fact, the IRS has increased scrutiny of internationally filed returns more than locally filed returns over the past several years.
Blurring Lines on Business Expenses
Any excessive business tax deductions will be given a close eye by the IRS. A tax return that shows 20% or more above the norm warrants a second look at the form by IRS.
Additionally, take-home vehicles aren’t really considered business so a specific purpose or reasoning should be tacked with any vehicle-related deduction.
There are many other red flags that must be avoided to decrease chances of an IRS led tax audit. However sometimes you won’t be able to run away from a compulsory audit. The best way to handle the situation is by providing the following documents:
- Purchase and sale journals
- General ledgers and journals
- Florida tax returns
- Cash receipts and disbursement journals
- Federal tax returns
- Property records
- Depreciation returns
- Other documentation for verification
Do you want to ensure the red bells don’t start ringing with your IRS tax return form? Hire a professional accountant before every tax season to minimize chances of a tax audit! Call A&B Accounting and Business Solutions, Inc today.