After the holidays have passed and the new year commences, many people in Missouri, especially small business owners, turn their attention to the next big task ahead of them — filing taxes. Though the chances of a small business owner being audited are relatively rare, some statistics indicate that small business owners may have a higher chance of being the subject of an audit in comparison to the general public. There are certain steps that a person can take to help avoid facing such scrutiny.
One way to avoid drawing attention is to ensure that tax returns are filed every year even if the business was not profitable. The IRS could interpret a missing or incomplete return as a sign that a business owner is attempting to hide something. Though this may seem obvious, it could be a red flag to trigger an audit.
It may also seem obvious but it is important to be truthful and accurate on tax returns. The IRS will often compare a business’s returns to other sources of information — such as employee tax returns. Also, while rounding to the nearest dollar may be acceptable, if all numbers listed end in a 0 or 5 are listed, the IRS may become suspicious that the information is not accurate. Additionally, listing unlikely tax deductions — such as 100 percent deduction on a vehicle — could also flag an audit as it is unlikely that the vehicle was not used for personal use at some point.
While there are many other measures that a business owner can take to protect themselves from an audit, it cannot always be completely avoided. Unfortunately, the process of gathering receipts and responding to the IRS can be time-consuming and overwhelming. Fortunately, there are experienced professionals who can help business owners in Missouri who are facing such scrutiny.