As a business owner, you are expected to wear many hats. On top of looking after your actual business operations, you are also expected to stay on top of your business finances. Unfortunately, the latter could be a challenge if your business is growing and there is an expansive set of critical business numbers to crunch. Not to worry though, because you are not entirely helpless on the matter. In fact, there are a myriad of modern tools and processes to get you ahead - one of which is a business audit where you can look at the seven audit red flags.
A business process audit works by making sure that your business financial information are accurate and up-to-date. Secondary to this, an audit is also a requirement for investors who want to ensure that they are putting their money into a profitable business endeavor. But do you know that apart from that, there is also an audit that is spearheaded by the IRS? The IRS audit could be tedious and may entail serious repercussions in the long run. If you want to keep your business from being audited by the IRS, here is a business audit checklist to get you right on track:
1. Outdated net loss reports.
The IRS takes business reports seriously - business net loss included. To keep the IRS from noticing your business (and seeking an audit), it is best to keep business net loss reports updated and filed accordingly.
2. Repeated late filing and payment of taxes.
Habitually filing and paying your taxes beyond the deadline set by the IRS is not a good practice as it puts you in a tight spot where the tax office is concerned. Make sure you follow requirements next time to keep the IRS from putting your business on its audit list.
3. Questionable employee salaries.
If the salaries paid to your employees are unreasonably high, beware. The IRS typically conducts audit on such businesses as this could be a cause for tax scams. To stay clear from serious tax office concerns, reassess the salaries of your employees and make sure you are not violating tax rules.
4. Unreasonable tax deductions.
Are you going overboard with the tax deductions you’ve been filing lately? Assess your actions and keep yourself from doing it again. As a rule of thumb, the IRS puts their foot down when businesses seem to be filing unreasonable tax deductions. Here’s a tip: To stay out of trouble, make sure the receipts and invoices for each business transaction are monitored and accounted for.
5. Resorting to tax abuse.
The IRS has a list of tax malpractices - make sure your business is not engaging in any of these. Such cases of tax abuse are those that run along the lines of shifting income to tax-exempt organizations for the purpose of avoiding tax payments. Do not adhere to these malpractices if you don’t want the IRS to audit your business.
6. Discrepancies on vehicle use.
If you are using a vehicle for both personal and business use, report the correct use of mileage for the latter. Otherwise, the IRS may find this questionable. At its worst, your business could get audited because of this.
7. Under-reporting taxable income.
Last but not the least, report taxable income accurately. Otherwise, your business could get audited, especially if it notices that your business is under-reporting. Note that this piece of advice is especially true in the case of cash-intensive businesses such as restaurants and salons.
Being on the watch list of the IRS is not good for your business. To get your business finances on solid ground without being flagged by the IRS, it is important to comply with your tax obligations and the tax rules set by the tax office.