We recently shared a post about six red flags the IRS looks for when deciding which small businesses to audit. You can read the post here.
In this follow-up post, we will discuss four more things that many small business owners in Atlanta do that increase the risk of getting their income taxes audited. Whether you can avoid these practices or not in your industry, you should at least be prepared for the possibility that doing them will lead to a letter from the IRS.
Errors on your tax return
If you prepare your business’ tax returns yourself, double-check to make sure you have all the math correct. An error, even one in the IRS’ favor, can cause the agency to flag your return for possible auditing.
Taking the home office deduction
Many small business owners work from home in a dedicated office space. Qualifying for the home office deduction can save your venture some on taxes. However, claiming this deduction can also trigger an audit.
Filing a Schedule C
The Schedule C form is used by sole proprietors who wish to claim their business income. But it also makes it more likely that the IRS will audit your business.
Claiming a loss in consecutive years
The IRS gets suspicious of businesses that claim a loss on their taxes for two or more years in a row. They often question whether such an enterprise is a legitimate for-profit business or a hobby the taxpayer is trying to write off.
The IRS only audits a small percentage of taxpayers every year. Even if it happens to you, it does not mean your business is in jeopardy. There may be a solution that resolves the matter fairly.