Top IRS Audit Triggers: Is Your Business at Risk? What Triggers an IRS Audit? Small Business Tax Audit Triggers

dimitri karastelev ZH4FUYiaczY unsplash

As a business owner, an IRS (Internal Revenue Service) audit can be scary. The idea of being investigated by the government and potentially facing penalties or fines can cause stress and anxiety. However, many legitimate businesses may not realize they are at risk of an audit, even if they do everything by the book.

IRS Audit Triggers: How IRS Conducts Audit? 

First, let’s start with the basics. The IRS conducts audits to ensure taxpayers comply with tax laws and report their income accurately. Audits can be conducted randomly or based on specific information that raises red flags. The IRS uses various methods to select taxpayers for audits, including computer algorithms, informants’ tips, and related parties’ audits.

Common Triggers for an IRS Tax Audit: Tax Return and Deductions, Cash Transactions.

One common trigger for an IRS audit is a discrepancy between the income reported on your tax return and those reported by third parties or independent contractors, such as clients or vendors. If you report $100,000 in income on your tax return, but your clients report they paid you $150,000, this could raise a red flag and will trigger an audit.

Another common trigger for an IRS audit is claiming excessive deductions or losses. For example, declaring a large home office deduction but not having a dedicated workspace could lead to an audit.

In addition, several other factors can increase your risk of an audit. For example, you may be more likely to be audited if you have a high-income or foreign financial account.

Similarly, if you are a sole proprietor or a small business owner, you may be at higher risk because of the complexity of your tax returns. To reduce your risk, you must hire a law firm tax service to ensure you comply with all tax laws and regulations.

Receipts play a crucial role in IRS audits as they substantiate expenses claimed on Schedule C. Failing to provide accurate and organized receipts can trigger closer scrutiny from the IRS during the audit process.

Is Your Business at Risk: How to Protect Your Business from an IRS Audit?

  • Keep accurate records: This includes checking all income and business expenses and any deductions or losses you claim on your tax return. Make sure you have documentation to support all entries on your tax return.
  • Be honest: It may tempt you to fudge the numbers or claim deductions you’re not entitled to, but this is a surefire way to get audited. Be honest and transparent on your tax return, and hide nothing.
  • Work with a law firm tax services team: A tax professional can help you navigate tax laws and regulations. They can help you identify potential audit triggers and take steps to minimize your risk. They can also represent you in the event of an audit.
  • Be prepared: If you get audited, it’s important to be prepared. Ensure you have all the documentation to support your tax return and be ready to answer any questions the IRS may have. If you feel uncomfortable representing yourself, hire a law firm tax service.

Final Thoughts 

Small business tax audit triggers can be a scary and challenging prospect for any business owner. However, understanding the common audit triggers and minimizing risk can protect your business and avoid penalties or fines. With the right arrangement and guidance, you can confidently navigate the tax landscape and the odds of being audited. 

Need top-notch law firm tax services in New York? Trust the expertise of Law Offices of Stephen B. Kass, P.C. Our experienced tax attorneys provide comprehensive solutions tailored to your unique needs. Contact us today to learn how we can help you achieve your financial goals.

Top Tax Lawyer NYC Articles

Browse our collection of expert articles pertaining to new york sales tax, ny state tax refund, 
ny state income tax, and other
tax in new york topics.

Miami Florida Tax Articles

Florida Tax Guide Is Social Security Taxed in Florida Federal Tax Benefits of Retiring in the State

Florida Tax Guide: Is Social Security Taxed in Florida? Federal Tax Benefits of Retiring in the State of Florida 2023

Social Security benefits serve as a vital source of income for many retirees. As individuals near their golden years, understanding the nuances of Social Security taxation becomes crucial. In this

September 11, 2023
Florida Tax Information for Taxpayers and Tax Professionals Do I Need to File State Income Taxes in

Florida Tax Information for Taxpayers and Tax Professionals: Do I Need to File State Income Taxes in Florida? Role of Florida Department of Revenue

Are you a resident of the Sunshine State wondering about your state tax obligations? Understanding whether you need to file state taxes in Florida is essential to ensure compliance with

August 28, 2023
Florida State Tax Rate Is There An Income Tax in Florida Everything You Need To Know About Fl ()

Florida State Tax Rate 2023: Is There An Income Tax in Florida? Everything You Need To Know About Florida Tax. Florida Income Tax Calculator

In a world where state income taxes are the norm, Florida stands out as a haven for residents seeking a reprieve from this financial burden. The Sunshine State has gained

August 18, 2023

Have More Questions?

If you have not found the Tax & Accounting answers you are looking for, feel free to search here and browse our article catalog!