INTERNET MARKETING

INTERNET MARKETING

INTERNET MARKETING

 

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HOW TO AVOID BEING AUDITED

 

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No one wants to have their small business audited by the IRS.  It’s never a good experience.  The IRS have to audit businesses they believe might be avoiding paying taxes.  They review their income and expenses to make that determination.  They’re looking for income that might be unreported, under-reported, or overstated deductions. 

 

Avoid getting audited by the IRS by paying attention to these top 10 things.

 

1.  CLAIMING A LOSS YEAR AFTER YEAR:

 

Claiming a loss year after year will get the IRS attention.  They will check to see if you’re a legitimate business and they will want to know if you’re claiming expenses that you shouldn’t.  Many businesses go on for a long period time experiencing losses.  Just make sure that you’re claiming legitimate expenses.

 

2.  LARGE DEDUCTIONS:

 

When it comes to deductions, don’t fudge the numbers.  The IRS has a formula that it uses to determine how what the deduction levels should be based on income.  Business Entertainment expenses should be in relation to your business.  Not for personal expenses for taking your friends and family on a trip.  The IRS looks for excessive claims of business entertainment expenses.  Protect yourself by keeping records for each claim, what was discusssed and who was in attendance.  Also, keep receipts for expenses greater than $75.00.  Be sure that you can document every deduction claimed. 

 

3.  BUSINESS USE OF VEHICLE:

 

If you do not have a vehicle specifically designated for business use only do not claim 100 percent business use of the vehicle.  It is a red flag if you claim 100 percent use of a vehicle when it is the only vehicle you have.  Obviously a portion of the use will be for personal reasons if you only have one vehicle.  You should document the portion of the vehicle that is used for business by keeping a log every trip.

 

4.  LATE FILING:

 

Don’t consistently file late.  It’s a red flag.  File on time.  If you have to file late, ask for an extension.  Be sure to pay taxes when they are due, this includes any interests or penalties. 

 

5.  HIGHER THAN AVERAGE INCOME:

 

Businesses with higher than average income will get more scrutiny from the IRS.  That has always been true and will continue to be true.  So, as your busniess grow and generate higher income be ready for more scrutiny. 

 

6.  CASH BUSINESS:

 

Businesses that operate on a cash only basis will come under more scrutiny from the IRS because they may be perceived to under report their true taxable income.  If possible use other methods to accept payments.

 

7.  SCHEDULE C:

 

The IRS gives more scrutiny to small business owners who file a Schedule C.  The Schedule C lets you take deductions that lower your taxable income.  However, If you have legitimate deductions, file the Schedule C.

 

8.  HIGH SALARIES:

 

Unreasonably high salaries paid to employees who are shareholders will bring scrutiny from the IRS.  What is unreasonable is unknown.  However, you should look at other companies in your industry to determine what the average salary is. 

 

9.  CHARITABLE CONTRIBUTIONS: 

 

Excessive contributions to charitable organizations could be seen as an attempt to avoid paying taxes.  Hence, the IRS will scrutinize large charitable contributions closely.  Make sure that your charitable contributions are reasonable and not done solely to avoid paying taxes. 

 

10. NOT INCORPORATED:

 

Not being incorporated could bring extra scrutiny from the IRS.  Because your business is not setup and operating as a separate entity, there is a chance that you may not be separating your business expenses from your personal expenses as a sole proprietor.  This is what brings attention from the IRS.  You should incorporate your business.  You can still get the lower personal tax rate by registering as a “S” Corporation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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