To minimize the chance of your company or client being audited, follow these guidelines:
1. Keep good records—including details on income, expenses, debts, and deductions—and keep them at least 7 years.
2. Make sure forms are completely filled out—and signed—before submitting them. Omissions may prod the IRS to double-check your returns.
3. Reminder: The IRS gets a copy of every 1099, W-2 and K-1 that you receive. Make sure you report all income and that it agrees with amounts on
documents the IRS has. IRS computers pick income that does not agree exactly with documents reporting your income submitted by you or any
other entity or person. Cash businesses must file an 8300 for cash transactions over $10,000.
4. Don’t change or mesh accounting methods. You cannot switch from cash to accrual or accrual to cash without IRS permission. Using a combination
of cash and accrual guarantees an audit. If you sell inventory, you are almost guaranteed to be required to use the accrual method.
5. Classify workers as ICs very carefully. If you control when, where and how the person works, and do not have a contract, the IRS may say that is
an employee and assess you back payroll taxes. Reminder: 1099s are required if you paid an individual more than $600 during the tax year.
6. Do not commingle personal expenses and business expenses. If you take a home office deduction, have a designated work area and photograph it. If you use your personal automobile for business, keep a contemporaneous log on when, where and why you drive and the business purpose. If you piggyback a vacation on a business trip, you can deduct only the expenses related to the business portion.
7. If your taxes are complex, hire an accountant, or think about using tax software.
Source: Tiare Rath, “Top Ways to Avoid Small Business Audits.” About.com Small Business Information, available at http://sbinformation.about.com as of 3/1/10.
1. Keep good records—including details on income, expenses, debts, and deductions—and keep them at least 7 years.
2. Make sure forms are completely filled out—and signed—before submitting them. Omissions may prod the IRS to double-check your returns.
3. Reminder: The IRS gets a copy of every 1099, W-2 and K-1 that you receive. Make sure you report all income and that it agrees with amounts on
documents the IRS has. IRS computers pick income that does not agree exactly with documents reporting your income submitted by you or any
other entity or person. Cash businesses must file an 8300 for cash transactions over $10,000.
4. Don’t change or mesh accounting methods. You cannot switch from cash to accrual or accrual to cash without IRS permission. Using a combination
of cash and accrual guarantees an audit. If you sell inventory, you are almost guaranteed to be required to use the accrual method.
5. Classify workers as ICs very carefully. If you control when, where and how the person works, and do not have a contract, the IRS may say that is
an employee and assess you back payroll taxes. Reminder: 1099s are required if you paid an individual more than $600 during the tax year.
6. Do not commingle personal expenses and business expenses. If you take a home office deduction, have a designated work area and photograph it. If you use your personal automobile for business, keep a contemporaneous log on when, where and why you drive and the business purpose. If you piggyback a vacation on a business trip, you can deduct only the expenses related to the business portion.
7. If your taxes are complex, hire an accountant, or think about using tax software.
Source: Tiare Rath, “Top Ways to Avoid Small Business Audits.” About.com Small Business Information, available at http://sbinformation.about.com as of 3/1/10.
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