Red Flags That May Trigger an IRS Audit of Your Business
You should try and do everything you can, as a business owner, to prevent an IRS audit of your business from happening. There are certain red flags to avoid - that may trigger such an event. Our accounting firms at the Lake of the Ozarks are here to help you by naming a few. If you are interested in having someone check over your business and give you constructive solutions, call the Wilson Toellner CPA firm nearest you. We have four conveniently located firms and the phone numbers for each are all located at the bottom of this blog.
Abnormal High Salaries
Unfortunately, there are people who will try to get away with paying themselves too much. For example, a business owner, making up a "fake employee" and claiming that "fake employee's" paycheck. Something like this could absolutely trigger an IRS audit. Also, according to Kiplinger, IRS statistics for 2016 show that people with a yearly income of $200,000 or higher had an audit rate of 1.70% or one out of every 59 returns. The audit rate drops greatly for filers making less than $200,000.
Transactions That Are Cash Only
Businesses that have mostly cash only transactions can draw the attention of the IRS because it's harder to verify income that way. It can also be seen as suspect to make large cash transactions, such as:
Home Office Deductions
In today's day and age of technology, many businesses can operate out of their homes. Just be careful when making the home office deduction. Deducting too many expenses when compared to your gross income can draw suspicion from the IRS. Also, be sure when claiming your in-home space you use the "percentage of use" method based on the type of business you have. If you find deducting your home office costs difficult on your own, see a tax consultant at the Lake of the Ozarks first. Better safe than sorry.
Large Donations to Charities
If you make a donation to a charity from your business that is larger than normal, you may draw attention from the IRS.
We view our role in the financial reporting process as an opportunity to provide constructive solutions for maximizing your company's profitability and efficiency. We provide financial reporting on all three levels of assurance:
If this sounds like something you'd be interested in having done for your business, give us a call. We are happy to help you and your business.
Red Flags That May Trigger an IRS Audit of Your Business
Abnormal High Salaries
Unfortunately, there are people who will try to get away with paying themselves too much. For example, a business owner, making up a "fake employee" and claiming that "fake employee's" paycheck. Something like this could absolutely trigger an IRS audit. Also, according to Kiplinger, IRS statistics for 2016 show that people with a yearly income of $200,000 or higher had an audit rate of 1.70% or one out of every 59 returns. The audit rate drops greatly for filers making less than $200,000.
Transactions That Are Cash Only
Businesses that have mostly cash only transactions can draw the attention of the IRS because it's harder to verify income that way. It can also be seen as suspect to make large cash transactions, such as:
- Purchasing a company vehicle
- Purchasing business equipment
- Purchasing a property
Home Office Deductions
In today's day and age of technology, many businesses can operate out of their homes. Just be careful when making the home office deduction. Deducting too many expenses when compared to your gross income can draw suspicion from the IRS. Also, be sure when claiming your in-home space you use the "percentage of use" method based on the type of business you have. If you find deducting your home office costs difficult on your own, see a tax consultant at the Lake of the Ozarks first. Better safe than sorry.
Large Donations to Charities
If you make a donation to a charity from your business that is larger than normal, you may draw attention from the IRS.
Interested in the Audit Services at Wilson Toellner CPA?
We view our role in the financial reporting process as an opportunity to provide constructive solutions for maximizing your company's profitability and efficiency. We provide financial reporting on all three levels of assurance:
- Audit- an intensive examination with the highest level of assurance
- Review - some analytical procedures conducted with limited assurance
- Compilation - based upon client information provided and used primarily for internal use.
If this sounds like something you'd be interested in having done for your business, give us a call. We are happy to help you and your business.
For tax preparation services you can count on, call:
Sedalia -- (660) 827-4990
Marshall -- (660) 886-6815
Camdenton -- (573) 346-6822
Lake Ozark -- (573) 964-5739
Check out our website: www.WTCPA.com
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