Tax season offers an abundance of hassles and most small business owners fell relaxed once the season is over. However, the worse may arrive even after the tax season. If the Internal Revenue Service (IRS) finds issues with your tax filing, it may proceed with the auditing. Shall there be any mistakes with the tax-related forms that you filed, your business is likely to land in the soup of trouble. To walk safely with your business taxes, it is essential to employee an impeccable strategy.
Here are some of the finest strategies to avoid a small business tax audit:
1. Work With Honest Payment Partners
While you have been very true with your tax filing details, it is expected that you will not attract auditing from IRS. Now think about it – when one of your clients is under the scanner of IRS and they are being audited, which eventually shows a payment to you. In case, the payment is large or the client records are erroneous, it will cause the IRS to concentrate on your records with the auditing process. Even if your record comes out clean and neat, the involvements of annoyances and bothers are inevitable. Better to be safe than sorry – it is recommended to deal with partners that are maintaining a clean sheet.
2. Your Success May Attract Auditing
Obviously, an overnight success requires hard work of many sleepless nights. But, IRS may not agree with it. The more successful you are, the more are chances of IRS auditing you. If your business is rising to the soaring heights, the IRS may doubt of some mischievous activities. So, avoid exaggerating your business stature with the financial grounds. Be truthful with past declarations and what you earned with so-called ‘overnight success’.
3. Your Loss May Get Worse
The IRS treats success and failure equally. As mentioned above, growing at a steep rate is not easily acceptable to IRS and, at the same time, shrinking businesses also attract their interest. If a business goes for continuous loss for some years, it is likely to get even more troublesome. IRS will suspect it for they find nothing sane in you keeping a business going when things are not favorable. Because of the continuous losses, IRS can doubt you of being a cheat with the profit/loss statement. To avoid being in the eye of IRS, concentrate on keeping your business on the positive side.
4. Avoid Being Heavy On Cash Transactions
The categorization of businesses plays a critical role in earning red flag from IRS. Specifically, the businesses that make most of its deals in the form of cash transaction are likely to gain more attention of the IRS. This is simply because cash transaction allows more loopholes for tax cheating and frauds. Additionally, maintaining the proofs requires a strenuous effort for such transactions. So, there are chances that your tax filing may have gone wrong in a big way. Hence, it is better to avoid the cash transactions with the business income and expense as much as possible. When cash transaction is inevitable, keeping the right track of invoice and other transaction proofs are required.
5. Call For Software Solutions
Being honest with the tax filing is the best practice that helps in avoiding the tax audits from IRS. But when it comes to the collection of all the transaction records of the financial year, nothing comes easy unless you are served by a reliable accounting or tax software. Fine accounting software, integrated with the bank account, can keep the track of transactions automatically. Along with that hosting tax software on the cloud allows you to control the operations from anywhere, anytime. Additionally, most of the modern software come built-in forms to fill up the tax forms without errors and hence, limiting the chances of auditing.