Taxes can often be complicated and difficult to manage for small business owners. With all the new tax regulations, handling the details of quarterly taxes is not only time-consuming, but also confusing.
Small business owners are well aware that self-employment tax returns can often trigger an IRS audit. If we educate ourselves on the details of what to do and not do, we minimize our possibility of being audited.
As small business owners, we need to be even more meticulous in filing accurate numbers with the receipts and documentation to back those numbers. Let’s review 5 mistakes small businesses make that trigger the IRS to run an audit.
1. Deducting non-exclusive home office space
It’s awesome to run a business from home, but realize that when you do, it can put the IRS on alert regarding your tax return. In order for a space in your home to qualify as a home office, the IRS places strict requirements that must be exclusively met in order to take a deduction. Write off only the room in your home used exclusively for business, and not for anything else—at any time. The IRS publication 587 details home office requirements.
2. Not reporting all taxable income
If the number on your annual tax return differs from the W-2 form or 1099 form your employer sent the IRS, you may find your business being audited by the IRS. Therefore, if you find a mistake on your W-2 form or 1099 form, talk to your employer about correcting the mistake and resending the information to the IRS so your numbers are consistent and accurate. If numbers are misrepresented in one area, the IRS concludes they could be misrepresented in other areas, and that sets you up for a possible audit.
3. Taking high deductions
If the deductions you take are disproportionate to your business income, you are waving red flags to the IRS and increasing your possibility of being audited. Never take a deduction that you don’t have the documentation to prove.
4. Reporting an excessively high income
The higher your income as a small business, the more meticulous you need to be with your documentation, receipts, and overall numbers that represent your business to the government. We all want to earn a high income, but realize that when we do, we are more apt to be audited. Plan ahead by keeping the books squeaky clean and saving all receipts. Too many people underreport their income on taxes. Honesty and integrity are imperative on income taxes. No matter what your income level, by choosing to accurately represent your income, you decrease your possibility of an audit.
5. Making disproportionately large donations
If your small business makes large charitable donations, you may draw the IRS’s attention to your business. We all enjoy giving generously to our favorite charities, but the dollar amounts we are legally permitted to deduct are subject to income-based limitations that have to do with the type of charity we’re donating to: a foundation, public charity, or private charity. Be sure to obtain a donation receipt that includes your name and the amount of your donation. https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions
Get a Tax Expert and Guarantee Accurate Taxes
At Shockley Bookkeeping, we understand how it feels to be overwhelmed by a small business’s books—especially when tax season rolls around. That’s why with over 50 years of combined experience, our team of professionals has helped hundreds of small businesses in Tulsa and Broken Arrow, Oklahoma, get their books back on track and manage them accurately month after month.
Using our simple 3-step plan, you can stay in control of your finances and build your business wisely.
- Talk with us – contact us to get a free quote and consultation.
- Choose your services – we customize services to meet the needs of your business.
- Be confident – make wise financial decisions and focus on growing your business.
Learn how Shockley Bookkeeping can take the stress out of tax season. If you want dependable tax preparation, up-to-date tax advice, and help avoiding tax surprises while protecting your business, contact Shockley Bookkeeping today. If you have questions about your personal taxes and how they impact your small business taxes, we can help with that as well.
Now is the time to get back in control of your books, so your time can be freed up to focus on what you do best: the work of your business. Take the sting out of taxes by contacting Shockley Bookkeeping today at 918-615-8380 for a free quote and consultation.