The biggest red flags to watch out for…
Here are just a few more things you want to be careful with when it comes to taking deductions on your business taxes:
All in the family. When employing a spouse, child or close relative, be careful not to give them any extra-special treatment. Make sure the responsibilities of their job description are commensurate with their age and experience. Pay them the same salary you’d pay anyone else doing the same job.
In the money. An excessively high income compared to previous years can stand out and trigger an audit. And high-income taxpayers are more likely to be audited since they’re more likely to be involved in complex transactions and have partnerships, trusts or businesses.
Consistency is key. The IRS will notice if your federal return is disproportionate to your state return, so be careful to ensure they’re consistent.
Stay on the up and up. People who’ve filed frivolous lawsuits in the past are most likely always going to be audited. Considering not filing your taxes at all? Here’s something that may cause you to re-think your decision: People who haven’t filed their federal taxes can be picked up for fraud, hit with a felony and do jail time. Even if you don’t have the funds to pay off everything you owe, we strongly suggest filing anyway-it’s better to file and not pay all you owe than wait until you have all the funds and risk getting hit with penalties or worse.
Know your preparer. More and more, the IRS is using a software program to check up on tax-return preparers. If they notice a high error rate, they’ll not only audit the return-preparer, but they’ll also audit that person’s clients as well. So do your homework before choosing a preparer. And if you ever have any doubt as to whether they’re guiding you in the right direction, seek an outside opinion before proceeding.
Protect yourself. If you are selected for an audit, we recommend standing up to the IRS by getting representation.
See also…