No one wants their business to be on the Internal Revenue Service (IRS) audit list! Staying off the IRS’s radar should be every businesses goal. There are certain actions that catch the IRS’s attention, and these could lead to costly consequences.
Here are a few red flags to avoid:
Cash transactions: Having a lot of cash transactions may cause the IRS to pay more attention to a business. If possible, use a credit or debit card but if cash must be used, make sure all transactions are correctly documented and all paperwork saved. Keeping cash transactions at a minimum will greatly decrease the risk of being on the IRS radar.
Round numbers: Having income that is a round number may be a red flag. This may signal that the business is estimating and not using exact numbers leading to the IRS suspecting inaccurate filings.
Excessive deductions: Be weary of excessive or high deductions. Make smart choices when deciding what deductions to include and stay consistent with the types of expenses deducted. Keeping all documentation will also minimize errors.
Late filing: Filing returns late can draw unnecessary attention from the IRS, so ensure that filing is done in a timely manner. Filing late can put a business under the microscope of the IRS. Start early to avoid last minute delays and if you are running late, do request an extension.
Reporting losses: A business reporting loss from year-to-year may be a red flag as the IRS may assume that there are excessive deductions being taken. If a business does have a number of bad years, ensure all documentation is available as proof.
It's best to stay under the radar and avoid activities that would raise IRS suspicion, if you are concerned about your accounting process please reach out to Raleigh Bookkeeping today.