Every entrepreneur fears being audited by the IRS. Regardless of whether you have a decent accounting and bookkeeping framework set up and you are mindful of the rules set by the IRS, quite possibly you may confront a business audit eventually. There is nothing that you can do to dispense with the danger of an audit totally; however, business owners can be proactive to limit the risk with the goal that you can avoid the probability later on. Similarly as with numerous different parts of life, proactive action is more profitable than managing an issue afterward. Professional financial adviser and accountant Michael del Vecchio, who has kept the papers in order for companies in the US, Panama, Malta and others, provides some tips on how to reduce the risk of being audited by the IRS.
On the off chance that you are discounting business deductions, at that point you have to demonstrate that you are attempting to acquire a maintainable profit. Deductions aren’t intended to cover hobbies and a pattern of underperforming profits could make the IRS suspicious.
A business that isn’t profitable doesn’t mean that certain deductions can’t be considered. Explains del Vecchio,
“Most accounting experts will suggest that you expand your deductions however much as could be expected to use the tax cuts that are accessible. However, you should make sure that you are keeping detailed records to archive the exchanges on the off chance that any inquiries emerge.”
There is nothing wrong with allowing clients to make cash payments. However, it could cause a warning if each transaction occurs with money. We live in a digital world, which implies that numerous organizations are moving towards credit card and computerized exchanges.
The IRS may examine the organization somewhat more if everything is done in fiat. This technique for doing business improves the probability that entrepreneurs or representatives could be taking a little off the top tax-free. It’s simpler to conceal cash or alter the numbers if the transactions are handled through fiat.
The digital age has also made it feasible for the IRS to investigate the transactions somewhat more than previously. Keep in mind that you aren’t the just one sending the IRS data about your salary. Different organizations are required to submit tax documents and documentation with respect to the transactions and payments that have been made.
For instance, in the event that you offer a service-based organization and you functioned as a temporary worker for another business, at that point that organization will give tax data about the amount of cash that was paid to you in a schedule year. The IRS has a computer framework known as the “computerized underreporter” that contrasts different kinds of salary reports and the assessment forms that are documented. This IRS system guarantees that the numbers coordinate with things like home loan interest costs, W2 wages, and 1099 independent salary.
If deductions are being inflated, it might be a good time to stop. States del Vecchio, “Some entrepreneurs are searching for approaches to maximize their deductions, so they work the numbers with regards to things like money commitments, unreimbursed operational expense, therapeutic costs, and more. You ought to consistently claim each deduction for the legitimate costs that were incurred.
However, if the deductions appear to be inconsistent with industry averages, the IRS is likely to target the business.”
In the event that you telecommute, at that point you should be explicit about the measure of space that is being committed for business use. This calculation should be founded on the general area of your home, as well as on the amount of room that is required for the business exercises.
Costs ought to be deducted when you are out and about for business. Be that as it may, it will raise a warning if you are deducting mind-boggling expenses for luxurious eateries, entertainment and other activity not typically associated with the business.
On the off chance that you are going to utilize these expenses as deductions for your business endeavors, at that point you have to ensure that you generally have great documentation concerning why the expense was necessary. Simultaneously, be sensible with the recurrence of the movement contrasted with the requirements of the business.
Obviously, these subtleties change contingent upon your business and continuous exercises. Asserts del Vecchio, “Be smart about the manner in which you are deducting meals, transportation, and entertainment. Whenever you have inquiries concerning authentic deductions, it is a good idea to converse with your bookkeeper for custom solutions.”
Maintaining the books properly can go a long way toward protecting a business from an unnecessary audit. Keeping a disciplined approach to internal accounting will protect the business and keep the IRS at bay.