It seems that spring is here and that can only mean one thing: it’s tax time again. For small businesses taxes can be an especially stressful time, because most small businesses are big targets for the IRS. Compared to individuals and other types of businesses, small businesses are hit with the most tax audit. This is mostly because of the variety of expenses that small businesses can incur and the multitude of things small businesses try to write off. As a small business you want to have the lowest tax bill possible, but it is import to file accurately so that you don’t raise red flags and get audited. Here are 5 tips to help you avoid a small business tax audit.

  1. One of the biggest red flags for the IRS is writing off too much of a percentage of your rent or mortgage for your “home office.” If you work from home, you can usually work it out with your accountant so that you are only writing off a percentage of your mortgage or rent based on the square footage of the room you work in. It will be hard to write off the kitchen, living room and bedroom. The IRS also knows how many square feet is too many square feet, so try to be accurate and don’t pad anything.
  2. You also want to limit your number of contracted or subcontracted workers. The IRS will see this as an attempt to get away from paying employee taxes. If you have employees, make sure your full time workers fill out the necessary forms so that taxes are paid from their payroll. If a worker comes in everyday and is pretty much a full time worker, it will be hard to pass them off as a contracted worker, especially if you are counting their daily hours.
  3. A small business always want to have someone with the best handwriting fill out the returns, because a messy, unorganized return will raise suspicions. You always want to hire an accountant who can make the necessary changes and make sure there are no spelling or mathematical errors. The IRS doesn’t want to go through a messy tax form and if there are too many mathematical errors they might find it necessary to conduct an audit to get to the bottom of things.
  4. Small businesses can get creative with their tax filing, like applying for a tax rebate when leaving the country or writing off office furniture, but you don’t want to get too creative. If you write off more than is realistic the IRS will be suspicious and might conduct an audit.
  5. Lastly, businesses can avoid getting audited by diligently filling out quarterly tax returns. If the IRS sees that a business is responsible and not only fills out their quarterly returns on time, but also pays them on time, the less likely that the IRS will raise their red flags and conduct a tax audit. At the end of the day, the IRS just wants to see that a business is diligent about paying their taxes on time and filing truthfully.