As business owners, you know that March 15th is right around the corner. Lots of us had a bumpy 2009 and may not be too worried about tax liabilities. That is the good news. The less than good news is the fact that the IRS has announced a step up in the percentage of audits that they will be conducting this year.  There are a number of factors that can put you at higher risk of being audited. None of which is more of a red flag than being a small business owner. According to Investopedia,  just being a small business puts you at the top of the target list. Do any of these apply to you?

Partnership/Trust/Tax Shelter Risk
If you own shares in a limited partnership, control a trust or partake in any other tax shelter investments, you are more apt to be audited. While there may be no way to avoid such an audit, individuals that have a stake in such an entity should be aware that they have a target on their backs. They should also take even greater care to document deductions, donations and income.

Small Business Ownership
Small business owners are an easy target – particularly those with cash businesses. Bars, restaurants, car washes and hair salons are exceptionally big targets, not only because they deal in so much cash, but also because there is so much temptation to under-report income and tips earned.

Home Office Deductions
Be careful with home office deductions. Excessive or unwarranted deductions can raise red flags. In addition, large deductions in proportion to your income can raise the ire of the IRS as well. For example, if you earned $50,000 as an accountant (operating from home), home-office related deductions totaling $30,000 will raise more than a few eyebrows. Trying to write off the value of a new bedroom set as office equipment could also draw unwanted attention.*

At Laughlin Associates, we work with thousands of business owners each year to help keep them on the right side of audit troubles.  Still, we hear horror stories all the time from people who didn’t take their business documentation seriously.  It is not enough to just use a credit card statement as your substantiation. You must document who, what, why, and how much. This can easily be accomplished if you know what to do and use some simple tools.  For more on this you can go to our resource page. Even as the President of The United States expounds on the virtues of owning a business and how small business owners create the vast majority of jobs in this country, the Tax Man is planning a visit to many of those business owners’ doors. The government must collect every nickel it can to try to stem the hemorrhaging caused by the recent bailout spending and other entitlement programs. We small business owners will be targets, sure, but we will also continue to find new and creative ways to make our businesses profitable.  We will invent, manufacture, sell, consult and barter our way through whatever hurdles are placed before us. We have always been that way. We always will be.  Just make sure that you dot your “I’s” and cross your “T’s” along the way.You can read the full Investopedia article here.

Our company does a lot of live seminars. In fact, in 2009 we did more than 100 live presentations and that number could easily go higher in 2010. When I took over as CEO back in 2001, Laughlin Associates did just four 3-day workshops per year. These programs were more focused on selling than educating. They sometimes included pitches something like this, “If you buy right now you will get (fill in the blank) for free.” It was clear that this kind of tactic could create excitement or cynicism depending on your perspective. The seminars were successful selling machines but there were challenges that followed behind. The problem with selling based significantly on excitement and emotion is that buyers will often experience buyer’s remorse. Thus, after some seminars there might follow a significant refunding of money or other company-client squabbles. This was not good and it was clear that we could improve our product.

CEO Aaron Young also maintains his own blog at smallbusiness411.wordpress.com

Today, if you examine one of our seminar fliers you will find a very different agenda. Our programs feature highly trained Laughlin staff, expert lawyers and CPAs each with a unique specialty. We cover topics ranging from choosing an entity that is right for your business, how to manage your corporate record book, lectures on the latest tax deductions for business owners, bullet proof asset protection, and how to organize your business so that it you can sell it or pass it down to your heirs. There is no doubt that we want people to become clients, but the tactics are different.

Our goal is to teach you everything you need to know in order to take care of all of these issues yourself. However, it is our experience that business owners tend to want to understand the big picture and then want somebody else to deal with the details. Thankfully, they hire us to handle those details more often than not.

There is a general consensus among the legal and accounting firms that we work with that the vast majority (maybe 95% plus) of businesses that are being conducted through a corporation or LLC are NOT getting the protections that the owners believe that are getting. The devil is in the details and that is what most owners ignore and what Laughlin has been taking care of for almost 40 years.

I would like to hear any stories that you have about having the corporate veil pierced or audit challenges that you have experienced or heard about. We hear horror stories everyday as owners engage our company. I bet you have some scary ones to share. They may not be pretty, but sharing them will help others avoid some or your pitfalls.

We look forward to seeing many of you at the March Seminar