ABC Taxes, Tips & Tools

Tax Audit.  Those two words strike fear in the hearts of many tax­pay­ers. but as with many things an ounce of pre­ven­tion is worth a pound of cure.  Here are 7 tips to avoid get­ting audited.

1. Keep good records — include details for income, expenses, debts and deduc­tions and keep them for 7 years.

2. Omis­sions may make the IRS double-check a tax return there­fore make sure it is com­pletely filled out AND signed before sub­mit­ting it.

3. Be sure the income on your tax return matches the income indi­cated on every 1099, W-2 and K-1 . The IRS gets a copy of every 1099, W-2 and K-1 you receive and their com­put­ers will pick up on reports that do not match exactly.

4. Don’t change or mesh cash and accrual account­ing meth­ods.  A com­bi­na­tion of cash and accrual meth­ods, or chang­ing account­ing meth­ods is sure to attract attention.

• Remem­ber you need IRS per­mis­sion to change account­ing methods.
• Remem­ber if you sell inven­tory you are almost always required to use an accrual method to account for it.

5. Clas­sify employ­ees and inde­pen­dent con­trac­tors care­fully. An inde­pen­dent con­tractor can ask for a review to be treated as an employee and many do so to reduce their self-employment tax by half.  If you do not have a con­tract with an inde­pen­dent con­trac­tor, the IRS may claim they are an employee and assess back pay­roll taxes.

6. Co-mingled books make audi­tors drool.  Although there is no spe­cific rule for Sole Pro­pri­etors regard­ing co-mingling expenses and income — DO NOT co-mingle busi­ness and per­sonal accounts — it makes it very easy for the audi­tor to sug­gest a given expense is a per­sonal rather than busi­ness expense OR to con­cluded that a given deposit is busi­ness income as opposed to some­thing else.

• Have sep­a­rate accounts bank accounts,  credit cards,  etc. and keep your per­sonal and busi­ness receipts and other records separate.
• Keep a con­tem­po­ra­ne­ous log of vehi­cle mileage & expenses.
• If you have a home office keep the work area sep­a­rate, use it exclu­sively for busi­ness and doc­u­ment it.
• If you piggy back vaca­tion and busi­ness deduct only expenses related to the busi­ness por­tion of the trip.
• If you plan on tak­ing 100% deduc­tion for any listed prop­erty expense: auto­mo­bile, cell phone, com­puter equip­ment and enter­tain­ment devices, you had bet­ter be pre­pared to back that claim up; com­bin­ing a busi­ness trip with a trip to a gro­cery store even once is enough to vio­late 100%.
• Remem­ber there is no deduc­tion for Meals & Enter­tain­ment expenses that are not documented-keep your receipts and anno­tate them if required.
• Treat your com­pany as you would treat any other sep­a­rate busi­ness rela­tion­ship — keep all trans­ac­tions at arm’s length.

7. If your taxes are com­plex hire a rep­utable tax pre­parer or learn to use tax soft­ware.  Although you are ulti­mately respon­si­ble for any tax return you sign, you may avoid mis­takes if you obtain pro­fes­sional assis­tance; in the event a mis­take does occur relay­ing on an expert’s advice may help you avoid penalties.

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client.

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.