Can The IRS Levy My Accounts Receivable? Tips For Small Business Owners

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If you own a small business, there is plenty to worry about: payroll, production, meeting client and customer expectations, and meeting your financial commitments. If you also owe back taxes, you run the risk of the IRS levying your accounts receivable unless you take prompt action.

Last Resort

If you have received correspondence from the IRS and have either not responded to their notices or have not taken any action in clearing your tax debt, the IRS has the authority to levy your accounts receivable in order to recover the outstanding tax debt.

This just doesn’t apply to an outstanding business tax obligation; if you have an outstanding tax debt for your personal taxes, your accounts receivable is an asset that can be levied by the IRS.

Levying assets is the last resort for the IRS. If you haven’t responded to any prior communications or notices from the IRS, including a Notice for Demand of Payment and Final Notice of Intent to Levy, the IRS sees no alternative but to levy your assets, including any business assets.

What Will Happen Next

Once the IRS has begun to levy your accounts receivable, your clients and customers will receive a notice instructing them to re-direct their payments to the IRS rather than paying your company.

This is not only embarrassing for you, the business owner, but it can create problems in the future. Even after your tax debt has been cleared, clients and customers may mistakenly continue to mail their payments intended for your business to the IRS.

How To Avoid This Scenario

By now, you’re reading this thinking, “This could end badly.” Not so fast. There are ways you can avoid an IRS levy of your personal and business assets.

  • Since your accounts receivable is an asset, be diligent in managing your personal and business tax debt. The minute you realize your tax debt is more than you can handle, enlist in a qualified tax professional who can help you negotiate with the IRS. Don’t wait.
  • If you do receive a notice from the IRS regarding your tax debt, don’t ignore it. Instead, reply quickly to the address or phone number provided on the notice.
  • File your business and personal returns on time to avoid penalties.
  • You may want to consider filing an estimated business tax return each quarter. Your tax pro can help you decide if this is a viable option.

Facing an IRS levy of your accounts receivable is a nightmare that you would never want to face. After all, running a small business is stressful enough without having to worry about the IRS seizing your hard-earned accounts receivable.

By understanding the consequences of not responding to IRS notices regarding business and/or personal tax debt and taking a proactive approach in responding to any IRS correspondence, you’ll be less vulnerable to an IRS levy.

First and foremost, get in touch with a licensed tax professional who can advise you of your rights and responsibilities should you be facing delinquent personal or business taxes. Don’t delay. We have fully licensed and qualified Enrolled Agents and tax attorneys who can help you navigate the tax debt process.

Get started today by clicking on the white “Start Chat” button at the top right-hand corner of any of our webpages. We’re here to help.

How Do I Report Company Bonuses?

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That small business you started out of your garage or at your kitchen table has blossomed into a full-scale enterprise, thanks in part to your team of great employees. The salesperson cultivated, nurtured and converted a record number of leads. Your production staff exceeded their performance measurements beyond what they thought was possible. Your Admin. Assistant worked hard to keep you sane and to keep the office running smoothly.

Time to break out the checkbook and to issue some bonuses. Can you deduct those bonuses as an expense on your tax return?

Maybe you’re one of the lucky bonus recipients and are wondering if you need to claim your bonus as income.

Here is a brief run-down of how you need to account for bonuses at tax filing time:

Can You Claim Bonuses As a Business Expense?

Bonuses can be claimed as a business expense if they were given in exchange for services, such as your salesperson exceeding their quota. However, if you distribute the bonuses as a holiday gift at the annual party, you can’t claim the bonus as a business expense.

You must distribute the bonuses within the same tax year in order for you to claim them as an expense on your tax returns (provided they also meet the requirement above).

There is one exception to the tax year rule: if you use the accrual method for paying your taxes, you can claim the bonuses as an expense if they are paid out within the first two and a half months of the new tax year.

Payment To Relatives

If your record-breaking salesperson is also a family member, they will need to report their bonus as income in order for you to claim their bonus as an expense.

If You Are An Employee…

The IRS regards bonuses as “Supplemental Wages.” If you scored a bonus at work, your employer will likely use one of two methods in calculating taxes.

If you received a separate bonus check, your employer will most likely deduct 25% for taxes. This is known as the percentage method.

In come cases, your bonus may have come as part of your regular paycheck, and instead your taxes will be based on the total amount of your paycheck, including the attached bonus. This is known as the aggregate method.

If your bonus is large enough to bump you into the next tax bracket, and if you’re sure you’ll be making less money in the coming tax year, see if your employer would be willing to defer your bonus. He or she may not want to do that, but it won’t hurt to ask in the meantime.

Giving and receiving bonuses can be rewarding (especially for the employee) and they provide recognition for a job well done. However, there can be some tax headaches for both employer and employee, so it’s helpful to be familiar with the tax regulations on both sides of the equation.

Bonuses can be claimed as a business expense under certain limitations, and employees will have to claim the bonus as income. If both parties stay current on tax regulations regarding bonuses, tax time will be relatively pain-free.

 

Unemployed: Tax Tips For Job Loss

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It’s no secret that job loss is one of the most stressful life events you’ll experience. You deal with thoughts such as “How will I pay my bills? What about insurance? Will I get another job soon? Can I get Unemployment Insurance?” as the reality of your job loss sinks in.

Losing a job, either through termination or layoff hits hard on all fronts. You might also end up taking a hit on the tax front if you’re not familiar with how unemployment affects your tax scenario. Here are a two instances in which unemployment can alter your tax status.

Unemployment Insurance

The IRS considers Unemployment Insurance (UI) fully taxable income. In some cases (options vary from state to state) you can elect to have taxes deducted at the time you file your claim, and then again once you fill out your continuing claim form.

Either way, you’re going to be hit with taxes, either up front when they are deducted from each UI check (if you’ve elected this option) or at the end of the year when you file your taxes.

Think carefully and consider each option. Whether or not you have access to any other income ( e.g. severance pay, investments, child support.) and how cash-strapped you are will influence which option you select.

When in doubt, talk it over with a tax advisor who can assess your tax situation and current circumstances.

If unemployment has left you in the lurch financially, check with your local United Way 211 referral service. They may be able to refer you to low-cost or no-cost year-round tax services.

Otherwise, if you have the means it would be a good idea to meet with a tax advisor who can help you to fully  assess your options.

IRA Distributions

You won’t know for weeks whether or not you qualify for unemployment, and it could a few more weeks before you see that first UI check or deposit if you do qualify. Meanwhile, your IRA is there, ripe for the picking. After all, bills are due and the landlord or mortgage company is getting restless.

You guessed it. There’s a tax hit for withdrawing funds from your IRA if you’re younger than 59 1/2. A 10 percent tax hit up front, and then an additional 20 percent hit if your IRA is tax-deferred (no taxes were deducted at the time of contribution).

There may be a way around those tax hits at the same time: the Qualifying Reason clause. Generally, the IRS won’t tax your early IRA distribution if you can demonstrate one of these scenarios:

  • The funds were withdrawn for college expenses for yourself, a child, spouse or grandchild
  • If you need to cover the expense of a sudden disability
  • If you have medical expenses that are not covered by insurance and that exceed 7.5 percent of your Adjusted Gross Income (AGI)
  • First-time home purchase (can withdraw up to $10,000 tax-free)

Remember, the IRS will require supporting documentation for any of the above circumstances so keep any related receipts and records.

Sudden job loss can wreck havoc on your finances and well-being. By knowing your tax options up front, you will be able to make an informed decision regarding the best options for you.

If you’ve been hit with a layoff or job loss and are struggling to pay your tax bills, we can help. Just click the white “Start Chat” button at the top right-hand corner of any of your pages, and you’ll be put in touch with one of our qualified tax pros. Job loss is stressful enough; don’t let a looming tax bill add to your stress.

How Long Do I Need to Keep This Anyway? When To Toss Your Tax Documentation

Tax Returns

If you’re de-cluttering at home or work and come across a stack of past years’ tax returns, your first instinct would be to shred them. After all, who doesn’t like a clean, organized file cabinet? Before you bust out the shredder, here are a few guidelines to keep in mind regarding your tax paperwork.

Three Years

The IRS has a three-year window in which they can select your tax return for an audit, so the safest thing to do is to keep your tax records for at least three years. Here are some forms that should be kept with your tax return:

  • Your 1040 with all schedules, along with any receipts supporting your itemized deductions.
  • Income forms such as W2 and 1099 forms
  • Bank statements, K-1 forms, asset statements such as stocks and bonds
  • Sales receipts for any asset you sold during that tax year.

Since your 1040 form and income forms contain your social security number and other sensitive information, keep your tax records in a secure spot in your home.

If you filed your tax returns online, print out and keep a hard copy. In most cases, it’s best to hang onto your tax return copies indefinitely, especially if you bought or sold assets (stocks/bonds) or real estate.

If you filed a more complex tax return (business, estate or partnership returns for example) you should keep them for up to seven years, particularly if you’re self-employed. Same goes for any supporting documentation for those returns.

Unfortunately, the IRS tends to scrutinize small businesses more closely and tax returns with the Schedule C (self-employment attachment) tend to be more vulnerable to an audit.

Some Exceptions

If the IRS has reason to believe that you have filed a fraudulent return, they can follow up at any time; there is no statute of limitations.

If the IRS also has reason to suspect you deliberately under-reported your earnings by 25 percent or more, they will come calling regardless of how many years have passed.

In other words, play fair and chances are the IRS will leave you alone.

In any case, if you’re not sure how long you should keep your tax records, check with a qualified tax pro who can answer your questions.

Each tax scenario is different, so if you’re purging old paperwork in the name of getting organized, be sure the check with a qualified tax professional before shredding any old returns and supporting records; Googling isn’t enough in some cases.

When in doubt, consult a tax pro who can help you address the sometimes complicated question of “How long do I need to keep this, anyway?”

 

 

Work Pays In More Ways Than One: Work-Related Deductions

Dan MacDonald
Dan MacDonald

 

 

Previously we discussed deductions for job seekers. What if you’re content to stay with your current job and have no desire to pound the virtual payment in search of a new gig? You’re in luck too because you may be able to deduct some of your work-related expenses for your present job.

Unreimbursed Employee Expenses

If you pay job-related expenses that are not reimbursed by your employer during the year, you’re in luck. Here are the guidelines for such expenses:

  • Paid or incurred during the tax year
  • Ordinary expenses: These are expenses that are common within your industry. If you’re a contractor, you could write off a portion of those new power tools you purchased, but you may not get away with the same if you write code for a living.
  • If the expenses are necessary, e.g. helpful to your business or trade.

Common Deductible Expenses

Some of the more common employment-related expenses include:

  • Dues for professional, business or civic organizations within your industry
  • License renewal fees
  • Passport required for business travel
  • Subscriptions to professional or trade publications related to your occupation
  • Travel, transportation, lodging, meals and entertainment as they relate to your line of work
  • Uniform expenses if required for your job and if your uniform isn’t suitable for off-hours use.
  • Union initiation fees and dues

You can see a more comprehensive list of deductible expenses in IRS Publication 529.

Educator and Home Office Deductions

If you are an educator, you will also be able to deduct certain expenses.

K-12 teachers, principals, aides, counselors who work at least 900 hours during the school year may be eligible to deduct the cost of books, supplies, equipment (including computer expenses) and other classroom materials. College professors may be able to deduct research-related expenses.

The home office deduction is available under certain circumstances; if you use part of your home exclusively for business purposes and it is your principal place of business where you meet with clients or customers.

Your home office arrangement must also be for the convenience of your employer; many employers are trying to reduce their own overhead by having some of their staff work from home, so this trend could be in your favor when tax season rolls around.

As with anything IRS or tax-related, you’ll only be able to deduct a percentage of your overall expenses, provided those expenses meet the guidelines for unreimbursed expenses.

How Much is Deductible?

The formula is roughly the same as for job search-related expenses: any amount in excess of 2 percent of your AGI. For example, if your AGI is $20,000, you can only deduct anything in excess of $400.00. This is taken after you apply the 50-80 percent limit on meal, travel, and entertainment expenses (if they apply).

If you’ll be preparing your own tax return, you’ll need to attach Schedule A (Itemized Deductions) to your 1040 form and state these expenses under “miscellaneous expenses.”

Be sure to keep accurate records and hold on to any receipts or bills that are associated with the expenses you’re deducting. You’ll want to have them handy if the IRS should come calling.

IRS Publication 587 has more detailed information on calculating and reporting your work-related deductions; all information is based on the 2014 tax year. 2015 tax year information is not yet available.

If you’re not a tax code whiz, don’t worry. We have qualified tax advisers on hand that will answer your questions and even prepare your return for you when the time comes. Just click the white “Start Chat” button in the upper right-hand corner of our page, or give us a call. We’ll be glad to help.

 

 

 

 

Tax Deductions for Job-Seekers

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If you’re taking looking for a new job in the wake of the recovering economy, you’re in luck: some of your job search expenses are tax deductible. There is one catch: the deductions only apply toward a new position within your current industry. However, you won’t be able to deduct job search expenses if you’re looking for your first job or are changing fields.

Who’s Eligible

In order to take the deduction, you must either:

  • Be seeking a new position within your field while currently employed, or
  • Seeking employment in your regular line of work after a period of unemployment.

In other words, if you’re currently working in customer service and are looking to be the next tech god or goddess, expenses for that job search aren’t eligible in the eyes of the IRS.

Eligible Expenses

A good job search can be expensive over time. Here are the expense the IRS is willing to allow:

  • Resume expenses: Printing, snail mail postage and resume writing service expenses are allowable under IRS tax codes. Just be sure to keep all receipts that are related to your resume expenses in case you will need to substantiate these costs in the future.
  • Travel: If you are traveling out of the area to seek work in that community, keep track of your mileage, meal, and fuel expenses. If you’re traveling out of the area on personal business and decide to seek work at the same time, be sure to document the percentage of time and expense devoted to job search activities. Hold on to any receipts related to your travel expenses.
  • Agency Fees: If you pay an agency or outplacement firm to assist you in finding your next job, keep any and all agency receipts documenting the fee(s) paid to them.
  • Long Distance Phone Calls: If you make long distance calls related to your job search (phone interviews, for example) print out your phone bill and highlight the related phone numbers. Mark them as “long distance phone expense: Bay Area Tech.” By marking your phone bill as soon as you get it, you’ll save yourself the hassle at the end of the year when you may not remember what all those long-distance numbers were for.

How to Report These Expenses

If you’re using the DIY approach to filing your taxes, you’ll need to list these expenses on Schedule A of your 1040 form under “miscellaneous expenses.”

Here’s the catch: You can only deduct job search expenses that exceed 2 percent of your Adjusted Gross Income (AGI). Let’s assume your AGI is $20,000. You can only deduct eligible job search expenses that exceed $400.00, or 2 percent of $20,000.

A job search can be expensive: resumes, travel, long-distance calls and related expenses can add up over time. If you’re looking for a new job within your field, you can deduct some of those job search expenses.

If the thought of calculating these expenses or interpreting IRS tax code makes you uneasy, check in with a qualified tax prep advisor. He or she can answer your questions, help you determine qualifying expenses, and file your tax return on our behalf.

If you need a qualified tax pro to help you sort through the confusion, we’re here to help. Just click on the white “Start Chat” button at the top of the page or give us a call.

When to Hire a Tax Attorney

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You come home from a long day at work to find an IRS notice in your mailbox. You tear open the envelope to find an audit notice…or worse.   You know you should have a representative by your side, but which one? Today we’re going to look at a few situations that are best handled by a tax attorney.

Audit

You open your mail to find an audit notice from the IRS. At this point, it’s hard not to think of the worst possible outcome. After all, you’ve never been audited before.

The audit process is a legally binding contract between you and the IRS. Just as you wouldn’t go to civil court without representation, the same applies to dealing with an audit.

A qualified tax attorney can represent you during the audit process and explain the proceedings to you in a way that you’ll understand…free of jargon and legalese.

Your tax attorney will also see to it that the audit progresses in a timely manner, otherwise known as due process.

Your tax attorney can also negotiate with the IRS on your behalf, make payment arrangements if you owe any penalties or fees after the audit, and file for penalty abatement on your behalf.

Communications

If the thought of interacting with the IRS on any level renders you speechless or unable to convey your situation clearly, you’re not alone. At the same time, if you’re one of those who can’t communicate well under pressure without getting intimidated or flustered, a tax attorney is a wise investment.

They can not only interpret IRS jargon, but they can also communicate directly with the IRS on your behalf via phone, letter, or email.

Furthermore, a tax attorney can also push back if the IRS agent tries to intimidate them. Tax attorneys deal with the IRS for a living, so there isn’t any tactic they haven’t dealt with before.

Legal Action

The IRS has the right to file criminal charges against you if they have reason to believe that you are either purposely avoiding tax payment (tax evasion) or are hiding income from the government or falsifying your tax returns (tax fraud).

Both charges carry severe penalties, including jail time. If the IRS files criminal charges against you, your first course of action is to “lawyer up” AKA hire a tax attorney.

After carefully evaluating and researching your case, your tax attorney can determine whether or not you can receive a lesser degree of punishment, and they can represent you in court.

Missing Returns

If for any reason you neglect to file your tax returns, you’ll want an attorney to plead your case to the IRS. Those missning returns will need to be accounted for a filed.

The IRS may have some serious questions regarding the missing tax returns, and the circumstances under which they were missing, e.g., why they weren’t filed in the first place. Your attorney can not only communicate with the IRS on your behalf, they may be able to work toward a more manageable outcome after you file those past due returns.

You should retain a tax attorney whenever you are faced with an audit, criminal charges, or need to file past due returns. A competent tax attorney can communicate and negotiate with the IRS on your behalf, which can save you time and money in the long run.

If you’re facing a serious tax matter and need legal representation, we have qualified tax attorneys on staff to help you. Don’t let a notice from the IRS ruin your day. Give us a call or click the white “Start Chat” button in the upper-right hand corner of any of our webpages. Don’t go it alone when dealing with a serious tax matter. We can help.

A Nanny Tax Primer

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Photo:freeimages.com

 

 

Hear the term “Nanny Tax” and most of us think it only applies to rock stars and politicians. After all, their kids have full-time nannies and tutors, right? Don’t let the term “Nanny Tax” fool you, however. Even the average working parent may be obligated to pay Nanny Tax under certain circumstances. Here is a brief primer on the Nanny Tax:

The Basics

The Nanny Tax is actually a payroll tax, just like the Medicare, Social Security  payroll deductions that your employer takes each pay period. You’ll see them on your pay stub as FICA. Typically, these taxes are based on 15.3% of your earnings with an even split between you and your employer; 7.65% is deducted from your check and your employer sets aside 7.65% which is then paid in their quarterly payroll taxes.

The FUTA (Federal Unemployment Tax Act) tax is also deducted from your paycheck  and included in the 15.3%. It is contributed to the federal unemployment insurance fund and is paid out in the form of unemployment insurance in case of layoff or job loss. Some states also maintain their own state-based tax (SUTA).

The Nanny Tax works the same way. The IRS considers babysitters, nannies, housekeepers and other household personnel as employees because they must meet a specific set of guidelines in the performance of their job duties: start/finish time, specific tasks in the course of their workday…the same way your employer regards you and your work role.

Does The Nanny Tax Apply to You?

Let’s suppose you found a great sitter for your kid(s) and that person sits for you often. If that person earns $1900.00 or more from you for a given year, you will be required to pay “Nanny Tax” on their earnings since they are considered a household employee under IRS guidelines.

Exceptions

You won’t need to deduct Social Security and Medicare taxes (FICA) if your in-home child care provider is your spouse or other child under 18, or if they baby sitter is under 18.

You won’t need to deduct FUTA if the sitter is your spouse, parent, or minor child.

This is a relief to a lot of working families since many of them rely on other family members for child care.

It’s easy to think of the Nanny Tax as something only rock stars and politicians will need to worry about. After all, “nannies are for rich people.” However, if your child’s sitter earns more than $1900.00 in the course of caring for your children during the year, you, too, will have to pay  Nanny Tax payroll deductions.

In the scheme of things, however, it might be seen as a small price to pay for safe, consistent and reliable child care for busy working families.

Just For Small Business Owners: Deducting Business Expenses

 

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Photo:freeimages.com

 

Small businesses have their own set of tax regulations and requirements. Some small business owners may find themselves paying more taxes than they did when they worked as an employee within an organization or other business.

One of the challenges you’ll face as a freelancer or small business owner is accurately accounting for and deducting business expenses.

Generally, the IRS requires that the expenses in question be “ordinary and necessary.” In other words, they must be typical expenses for your type of business and must be necessary for your business to be successful.

Understanding the Difference Between Personal and Business Expenses

If you use cash and resources for both personal and business use, you will need to accurately record the percentage of business and personal use. One of the most common deductions is for vehicle use.

If you use your vehicle for business purposes 80% of the time and 20% for personal use, you can deduct 80% of the overall expenses (such as fuel, oil, repairs,) as a business expense.

However, the IRS looks very closely at this small business expense, so it is vital that you maintain accurate records of personal and business vehicle use and expenses. Keep all receipts related to repairs, fuel, and maintenance in case the IRS does come calling in the form of an audit. Better to have too much supporting documentation than not enough documentation.

Calculating Cost of Goods Sold

If your business is centered on creating a product and maintaining inventory, then you will need to calculate the Cost of Goods Sold (COGS) before writing off business expenses.

Take into consideration the cost of raw goods used in manufacturing your product, along with storage fees, labor costs, and overhead expenses from the factory. Once you calculate your COGS, you can accurately place a value on any remaining inventory at year end.

One word of caution: if a business expense was included in the COGS, you can’t  write off that business expense as a deduction.

Running your own business has its share of joys and headaches. By understanding a qualified business expense and understanding the difference between business and personal expenses, you can save yourself the additional headache of inaccurate business records and the possibility of an IRS audit of those same records.

If this is your first year in business or if you need help understanding the tax codes related to small business, don’t hesitate to get in touch with a qualified tax advisor. He or she can walk you through IRS regulations as they apply to your business and provide guidance should you ever be faced with an IRS audit.

As a small business owner, you may find yourself facing additional expenses, but you can’t put a price tag on the peace of mind you’ll get when consulting with a knowledgeable tax pro.

Audit Red Flags for Small Businesses

Freeimages/Paige Foster
Freeimages/Paige Foster

 

In many ways, owning a business can be rewarding: the chance to be your own boss, to conduct business in a way that is line with your own values, and to hire staff that you think will get the job done. The IRS  wants to make sure you are paying the taxes that you rightfully owe and aren’t committing fraud. Here are seven small business practices that can tip off the IRS and trigger an audit:

1. Regularly Claiming Business Losses

In some industries, this can’t be helped. Sometimes expenses far outweigh profits. Running at a loss also reduces your overall tax burden, and so the IRS is going to take an interest in businesses that report losses for two of the past five years. The IRS in this case has the option of re-classifying your business as a hobby, so you’ll want to keep meticulous records and provide documentation that can substantiate those losses.

2. Exceptionally High Salaries To Employee/Shareholders

If you are paying a higher than average salary to employees that are also shareholders in your company, the IRS will have one question foremost in their mind: Why are they being paid substantially more than others on your payroll?

3. Claiming Personal Expenses As Business Expenses

The IRS looks very closely at expenses such as medical, meals/entertainment, cell phone and travel when dealing with a small business. Unfortunately, there have been shady business owners who have had a field day with claiming personal expenses as business expenses.

Your business could attract closer IRS scrutiny if expenses in the above categories tend to be outside the norm for comparable businesses in the same industry. The burden of proof will be on you or your tax pro to demonstrate those costs were normal and customary in the course of running the business.

Keep detailed records of your business-related expenses and keep all receipts associated with them. In the event you are selected for an audit, you will be able to substantiate your claims.

4. Claiming Personal Vehicle Use/Expenses as Business-Related Vehicle Expenses

It may be tempting, but don’t do it. Nothing sends up an “audit me!” red flag to the IRS like vehicle expenses.

If your car is registered in your name but you are using it to conduct business, the IRS will look at this more closely than if the vehicle were registered in the name of your  business.  While not every business owner can finance a car under the business’s name, every business owner can and should keep detailed records of vehicle use for business.

Keep track of business-related mileage, fuel costs, insurance, registration and other related expenses. Only claim what is allowable under law. Keep all supporting documentation in case your business returns are audited. You will need these to support your claim of business vehicle expense.

5. Cash Business

Businesses such as hair salons, restaurants, home day care, and car washes have a higher proportion of cash transactions than other businesses. Be sure to issue a customer receipt for every transaction to document cash flow in and out of the business. Keep detailed payroll and expense records, and hold on to all supporting documentation in the event of an audit.

The IRS looks very closely at cash-based businesses, even if there is no wrongdoing on your part. Detailed records and copies of issued receipts will go a long way toward reassuring the IRS you are not committing fraud or laundering money.

6. Making Late Payments or Filing Late Returns

If you are consistently late in filing your business return or paying taxes, you could increase your risk of an IRS audit.

Make every effort to file your business returns and to pay your related taxes on time. The IRS may suspect you or your business of fraud or other tactics in light of late payments or returns, so timely payments and returns will be to your benefit.

7. Shifting Income to Avoid Taxes

There is no doubt that small business owners are faced with a higher tax liability than an individual who works for an organization. It may be tempting to lower your overall business tax liability by shifting income to non-taxable entities, such as a charity. Don’t do it.

If the IRS even suspects you are shifting income to avoid taxes, they will come calling. Instead, pay what you rightfully owe. If you find yourself in over your head and can’t make the payments on time, find a qualified tax pro who can help you sort out your options.

Small business ownership can be as rewarding as it is demanding. Unfortunately, small businesses fall under suspicion with the IRS because of business owners resorting to unethical tactics to avoid paying taxes or to lessen their tax burden.

Keep accurate and detailed records. If record-keeping isn’t your strong suit, hire a bookkeeper or an admin. assistant to take care of that task for you. Whatever you do, don’t falsify records or shift income.

You may find yourself at the receiving end of an audit notice even with the best of business practices. Try not to panic and enlist a qualified tax pro ASAP who will  walk you through the audit process and represent you before the IRS.

Don’t let the possibility of an audit deter you from owning a business. With sounds business practices, honest record-keeping and a good tax pro by your side, you can withstand an IRS audit.