Business taxes are due next month. Do you know where your documents are?
February 20, 2010 by ayoung
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.