As we move forward with the fourth quarter of the year, it is time to start auditing your business before the IRS has a chance to. According to DailyCaller.Com, the IRS is planning on hiring thousands of agents. That is bad news for small business owners. Now is the time to correct any mistakes that could follow your company well beyond 2011.
Although technology has replaced a huge percentage of the paper trail of most businesses, receipts that may have been paid out of petty cash or invoices paid by petty cash should be organized and scanned. If audited the IRS may question certain items found on bank statements, and without the receipts to prove their relevance, the expense may be disallowed.
Monthly Payment For Payroll
Courts are filled with liens for companies that did not pay their monthly payroll obligation. These liens can be result in a levy against business accounts. Penalties and interest will accrue until paid. According to 4NannyTaxes.Com interest and penalties over the course of 5 months can total 25%!
Ignoring IRS Notices
Can the IRS put you in jail? Yes! So don’t be lax on any notices that the IRS sends. Even if you know that the information is incorrect, make whatever attempts are needed to fix the problem.
Claiming Too Many Deductions
My cousin who is an accountant, once received a phone call from a very wealthy client. He asked, “I am at the BMW dealership buying my fourth car, can I write it off through my business?” My cousin responded, “If you do than you will need to find a new accountant.” It is an exaggerated example, but the IRS knows what is reasonable and what isn’t. Get professional advice and make sound judgment calls.
Mixing Personal and Business Expenses
In the days of the housing boom, lenders did not have a problem considering the business income along with personal income. Today, however, those same lenders require small business owners to show an income. The reason being is a owner can have a business doing one million dollars a year, but still not be able to take any income out of the company. If no income is shown for the IRS but your lifestyle suggests different, it will raise a red flag that a huge amount of “personal income” isn’t being reported.
As technology and laws allow the IRS better access and information, business owners are going to be required to become more diligent. No one wants to create a open invitation for the government to invade their business.