by Samuel Brotman, founder of Brotman Law
Tax season is coming to a close. Hopefully, you’ve already filed for the previous year or will be done soon. If you have recently started your own business, then you should know the process of filing taxes will be more strenuous than usual. You need to be especially adamant about checking all your figures properly to ensure you are paying your fair share and not omitting any crucial information. Otherwise, you’re bound to attract the unwanted attention of the Internal Revenue Service.
Tax audits occur when your tax return prompts the IRS to look especially close at what you’ve reported. Being audited could result in anything from having to pay much more than you originally thought to being charged with several crimes.
Businesses can be audited for a variety of reasons, from having too many expenses to employing loopholes through misleading information. Here are some tips for how to best avoid a tax audit for your new business:
1. Keep Your Records Straight.
As soon as you have your business rolling, you should be keeping track of everything related to money, from expenses to income earned to donations earned. These are all crucial factors that you need to know about when it comes to filing your taxes accurately.
It doesn’t need to be a time-consuming process either. Just take time once a week to update an accounting software of your choice with this information. Not only will it reduce your chance of an audit, it will also reduce stress considerably when it comes time to file your taxes.
2. Be Smart About Deductions.
One of the easiest ways to get audited is to find ways to try to pay less than you otherwise would, and one of the easiest ways to do that is through reporting deduction. With a business, you can count on including deductions in your tax forms, but you must use your best discretion.
While deducting office essentials like computers or restaurant essentials like stoves shouldn’t be a problem, you can’t deduct the cost of gas from driving to and from work. If you’re deducting everything under the sun, then you’re bound to arouse suspicion.
3. Check, Re-Check and Check Again.
Another good reason to file as early as possible: it helps you to catch mistakes. We’re all human and the monotony of filing taxes can cause us to make mistakes. However, there are slight mistakes, and there’s saying you have ten employees when you meant to type 100. Look over your completed tax return several times before sending it in. There’s always the chance that you misread one box and put in the wrong information as a result.
4. Consult with an Accountant.
You’re not the first person to start a business. Therefore, yours is not the first business to pay taxes. If you feel overwhelmed by all the work involved with filing taxes, then simply find someone who is experienced with filing taxes that can offer you the proper guidance, like an accountant.
It’s always a good idea to have an accountant on retainer early on, as they can help you with any financial questions you might have along the way. Just make sure you aren’t filing taxes the night before their due and panicking due to not speaking with an accountant.
5. Consult with Other Business Owners.
Similar to consulting an accountant, you should consult with other people who own businesses similar to your own. Ask them about their experience filing taxes and advice they have for avoiding audits. Just make sure that the business owners you do consult with are reputable and have not run into previous trouble with the IRS.
As scary as the idea of being audited might seem, you have nothing to worry about as long as you are honest and thorough with your taxes. You just need to make sure to prepare well in advance, keep track of all necessary figures and ask for help if you need it.
Samuel Brotman is a practicing attorney in San Diego and the founder of Brotman Law. His practice primarily centers on all aspects of tax litigation and criminal/civil tax controversies in front of the Internal Revenue Service, Franchise Tax Board, Employment Development Department, Board of Equalization, and various other state/local tax agencies. To learn more about Sam, follow him Facebook, Twitter, or LinkedIn.
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