Our prior post on our tax law blog began answering the question about whether some people might face higher odds of going through an IRS tax audit. So far, we listed a couple of QuickBook's causes for audits: high earnings and possibly rounded numbers.
This post continues that conversation and will hopefully help more people identify what they might be able to do in order to avoid an audit, or what they might want to look at in case of an IRS audit. Can you relate to the following tax-related situations?
You deducted a lot
It is expected that you have tax-deductible expenses for your business. It is expected that you have some common charitable deductions every year. The IRS tends to compare earnings or income against the amount of those deductions and determine if the ratio makes sense. Maybe to an outsider the ratio doesn't make sense. If you know that the numbers are correct and reasonable, have the paperwork to back it up and share the details with your trusted audit defense attorney.
Your business keeps losing money
Just what a person needs, an IRS tax audit when business is rough. It is like kicking a man while he is down. If you report that your business has lost money for a few or more years in a row, the IRS might wonder why someone would continue such a "business" if it is losing money. IRS suspicion might kick in and lead them to suspect you could be shielding them from money owed by falsifying numbers.
To someone who is simply trying to get by in running their business, family or both, it can be daunting and surprising when the IRS announces its audit. It is normal to feel like your integrity is being questioned; it is normal to want to defend your actions. Let an experienced IRS audit defense attorney take your side and help you fight.