Tax audit focus on small business partnerships
Do you have a small business? Is it structured as a partnership? You may not realize that the IRS tax audit focus has shifted to your business. Speaking at the American Institute of CPAs last week, IRS Small Business/Self-Employed divisions head Faris Fink said the agency will be shifting its auditing focus from corporations to small business partnerships, which have grown significantly in number over the last six years. From 2007 to 2011, the increase was more than 15% according to the IRS.
IRS to audit more small businesses
A new study used by the IRS to determine its auditing priorities shows small business owners in a handful of metropolitan areas are particularly likely to cheat on their tax returns. The study puts particular scrutiny on sole proprietorship, whose owners do to report income the same way most individuals report their wages. As a result, experts say those business owners often have more opportunities to cheat the tax system (as reported by the Associated Press).
Do you have a tax plan?
For small business partnership owners this means that you really need to have good tax planning. You will be much better off if you plan for and anticipate an IRS audit than being caught off guard. An IRS audit can drain your business resources. Plus, it will keep you from doing what you really need the most – getting more customers for your business.
Payroll red flags
One of the most common and costly tax related problems for small business owners is that they use the payroll taxes withheld from employees to finance business operations. Not only does the IRS go after small business owner’s personal assets to collect the unpaid payroll taxes. But, the IRS may also attempt to assess significant penalties. In today’s economy you may be doing anything to keep your business a float. Redirecting federal tax money from payroll is one of the most dangerous things you could do. The IRS has computerized systems that check for irregularities and this is one of the easiest to detect. If you are so behind in your payments that you are not sure if you can catch up you need to call a tax adviser immediately. Remember, only an attorney can provide attorney client privilege. If this is important to you then please call a tax attorney to discuss your business financial situation.
Map out mileage
Most small business owners need a vehicle for their business. Often times this vehicle is used for both business and personal use. Remember, that any personal use of the vehicle including commuting is considered a fringe benefit by the IRS and is therefore subject to tax. So, it is important to keep clear records and have a consistent method for calculating personal use of a company car. Keeping track of mileage and documenting every trip will help support your claims should the IRS choose to audit your reports.