As a budding entrepreneur, your dream has always been to form your own company. Well, now, this dream has come to fruition and you’re running your own small business.
This has brought numerous benefits. You have job satisfaction every day and you’re starting to make some serious money. However, you’re also now responsible for all of your tax returns. This is something that the Internal Revenue Service (IRS) will oversee. This body will monitor your progress as a business and will look into any anomalies.
Thus, it’s important for you to recognize some of the forms of conduct that may put the IRS on alert. Outlined below are some red flags for the IRS auditing a small business.
Are you a cash business?
Society is increasingly moving toward becoming cashless, but many transactions still take place with cash payments. Perhaps your business utilizes both electronic and cash payments. In any case, your financial records and tax returns need to be completely accurate.
You’ll need to keep receipts for every business transaction on file, particularly cash payments as they can be more difficult to trace. If the IRS notices sums of cash that are not accounted for, then this is a red flag for an audit.
What deductions have been made?
It’s perfectly normal and acceptable for businesses to claim tax deductions on certain expenses. For instance, if you attend business meetings then you may be able to claim meals and other expenses related to work.
Maybe your business involves you traveling around the state or even the country. If so, you might need to deduct the expenses of a vehicle or other forms of transport. While you can do this, you need to make sure that your records are completely accurate.
For meal expenses, for example, you’ll need to provide the details of the date, the locations, the amount, the business purpose and who attended. In addition, for travel, you’ll need to offer a complete insight into where you went, for how long and for what purposes.
If you keep accurate financial records and file your tax returns on time, then your small business may or may not face an audit. If you have been flagged, then make sure you seek some legal guidance to help protect your business interests.