Business Audit Risk: Top 3 Ways To Avoid An Audit

If you own your own home based business there are a few things that could get you audited.

Defining Your Business Audit Risk

Below we will discuss the top 3 that are most likely to have the IRS issue an audit. These can all be avoided if you follow our directions in implementing a strategy that will keep you out of trouble.

Complying With Business Losses

There is a fine line between a business and something that is run for fun. If your business has a loss, the IRS wants to make sure that you are actually running a business and not just writing off losses for non business events.

There are four major things the IRS looks for when you say that you have a business loss.

1. Your business is run like a business and not in any other form.

2. Your knowledge of the field you work in.

3. You are putting in time and effort.

4. You are making a profit.

If you don’t pass any of the above test then there are other test that you can pass to prove you are trying to achieve those things. The IRS knows when you are just trying to pull a fast one over them. If you are not they will work with you to understand your situation, just don’t try and take advantage of them if you are not running a business.

Seek Help from a True Professional

There are a lot of tax con artist out there that are looking to take your money and give you bad advice regarding your tax situation. There people will tell you they are professionals with years of experience but in reality they aren’t licensed and most often do not know what they are talking about.

The problem comes into play when the IRS gets around to shutting these people down for giving bad advice and hurting taxpayers. When they do finally shut them down, they may receive all their contacts, which will include your information. Once the IRS obtains this list they will audit everyone to make sure they are all in full compliance.

Since these people are not licensed, they are not practicing anything and cannot be sued for malpractice. In the end all there bad advice will cost you in penalties and interest that the IRS will eventually come after you for.

Remember to only work with tax attorneys, certified public accountants or enrolled agents. These professionals are licensed and liable for anything that goes wrong.

Too Many Deductions

Remember that what is business is business and what is pleasure is pleasure. Some people seem to confuse and merge the two together when they open a business.

Deductions are a great thing but do not think about taking them for things that involve pleasure as well.

One way to get into trouble with the IRS is to take deductions for this that involve a small amount of business and the rest involving pleasure.

Stick to taking deductions on things that only involve business, if you are unsure if you can deduct something that is on the fence, ask a professional.

Just having a business does not give you the right to start deducting everything. You must follow the rules or you will get audited for taking too many deductions.

Keep great records so you can prove your deductions if the IRS ever asks.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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