Florida Small Business Audits

Florida Small Business Audits

Few things can strike as much fear into entrepreneurs as small business audits. Even if you have no ill intent whatsoever, even if you did everything to the best of your abilities, there’s always the concern that you forgot to hold on to more than a few receipts or that some of your income last year might have gone unreported. Thankfully, the fear of a small business audit often outweighs the reality.

Very few entrepreneurs will ever deal with small business audits. However, it’s still important that you do everything in your power to keep yourself from falling into the small but undesirable percentage of audited business owners. You also need to be prepared for an audit should it ever happen, too. That’s why we’ve put together some preventative measures and other helpful advice below – so that you can take care of business and give yourself some peace of mind.

Double Check Your Math

When you’re issued a tax form that reports income, the IRS receives that information as well. If they notice any differences between your report and the report issued by your employer or other third parties, your chances of getting audited spike dramatically. You should also take the time to double check your math, just like your teacher always told you to back in high school. All of us make mistakes, but numbers that don’t add up can quickly lead to small business audits.

Don’t Report Net Losses Too Often

Do your best to avoid reporting a net loss too frequently. Small businesses audits are more likely to hit businesses reporting a net loss in more than two out of five years. What’s worse, the IRS might decide that your operations are more hobby than business and prohibit any more business expense deductions.

Maintain Your Records

Good record keeping is a must, and this is especially true when it comes to handling small business audits. Ensure that you keep all your receipts for all of your business expenses. It also helps to keep all of your business income and expenses in a separate business bank account. Not only does this back up your reports, it can make filling out your tax returns easier, too.

Be Honest and Accurate

We know you’re a good person, and we’re sure you would never lie, but we can’t stress this enough: you need to be honest with the IRS. Don’t hide any income; don’t exaggerate your expenses. The temptation is understandable, but the risk just isn’t worth it. Rounding numbers to the nearest dollar usually won’t set off any alarms at the IRS, but when you start rounding to the tens or hundreds, it starts to look like you’re trying to get away with something that you shouldn’t be doing.

Don’t Get Too Crazy with Executive Salaries

This one is important to all of you C Corporation owners out there. You are probably already aware that paying a high salary to executives can lower corporate profits and the associated taxes. But you shouldn’t let yourself get too crazy or ambitious with those salaries, either. Unreasonably high salaries invite scrutiny, and in turn, audits.

Know the Differences Between Independent Contractors and Employees

Some less-than-trustworthy businesses try to avoid or minimize payroll taxes by favoring independent contractors over actual employees. However, a disproportionate number of independent contractors can draw unwanted attention from the IRS. There are clear definitions as to what makes a person an independent contractor as opposed to an employee. Familiarize yourself with these definitions and follow them accordingly.

Read more about what separates independent contractors from employees here.

Be Careful with Home Offices

Home offices are pretty notorious magnets for small business audits. Thankfully, as remote work becomes more prevalent and employment less centralized, they aren’t quite as big of a risk as they used to be. Still, you should only take the deduction if your home office is used exclusively for business. Keep in mind that an audit is still a possibility if your home office is associated with unusually high maintenance or utility expenses, or if you also rent office space in another location.

Estimated Small Business Taxes

If you have reason to believe that you will owe $500 or more in business taxes by the end of the year, then you need to be making quarterly estimated tax payments to the IRS. Neglecting to do this can mean penalties, fines, and yes – it can lead to a small business audit, too.

Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website or calling 727-279-5037.