Don’t Be a Guest of the IRS

irsLet’s face it, an audit by the IRS is a great way to ruin your day.  Even the letter in the mail from the IRS will cause panic attacks, apoplexy, and words not fit for most gentle folk.

How do you avoid an IRS audit?  You can with professional help, experience, and proper financials.  First, know that there are historical triggers that will flag your records in the IRS computer for an audit.

  1. Home office deduction.  It is not illegal for you to have a home office.  This has been a sore point for a lot of business owners who work from home.  The way the audit works is that the IRS does not care about your electronic bill paying records.  They want to see an invoice from the billing company (like Duke Energy) for the monthly amount that was billed and then look at the percentage you carved off of the invoice for your home office.  Since the audit will probably be for your tax filing for several years ago you cannot go back far enough to find your original invoice on the web site of the company.  Hence, you have no paper copy way of proving your payment was for a valid invoice, and now you get dinged.
  2. Payments to yourself for your single owner business.  These are called owner’s draws.  Again, perfectly legal and it is done all of the time.  However, if the company does not make a profit that year it does not mean you do not owe any taxes.  And do not forget self employment tax.  As a single member business or LLC you still have to pay both the employee and employer parts of Social Security and Medicare which adds up to 15.3%.  This is on top of your federal, state, and local income tax.
  3. Not filing a return.  This is usually done by a business owner who does not have the funds to pay their tax obligations.  I know of some owners who stop paying their sales tax for the same reason.  It is never a good idea to just stop paying and not letting the IRS or state tax entities know what you are doing.  File a return even if you cannot pay the taxes owned. 

ASBC University is having a lunch and learn on Tuesday, September 29, 2015, from noon to 2pm at the Centennial Barn on 110 Compton Road, Cincinnati, OH 45215.  Kim Perry, the owner of Payroll Vault and an accountant, and Beth Bullock, owner of Legacy Business Services and a bookkeeper, will be our speakers.  Both of these professionals have a passion for the small business owner and are masters at their chosen professions.  They will be addressing the concerns listed above and will be sharing their experiences with proper and improper financial practices they have seen over their years in working with business owners.

To sign up for attending the university presentation, register here: 

Eventbrite - Don't Be A Guest of the IRS!

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