With the increased number of tax audits looming, the chances are ever increasing, whether it’s an audit from the IRS or even your state comptroller. However there are things that you can do BEFORE it gets to the point to where you need to be worried about how bad it could be for you. The latest “tax gap,” which the IRS uses as an estimate in what people are not paying, was released earlier this year and it’s currently estimated to be in the range of $385 billion. How do you ask how it’s gotten to be so bad? Well it’s an ever increasing tug-of-war between tax payers and the US Government.
With the increase of $95 billion since 2001, it’s no wonder that there’s an increase in tax audits. The reasons for this are: failure to file, not paying enough in taxes owed, and not reporting the true amount of income. As well, solopreneurs and small business owners are considered to be the majority of taxpayers that make up this tax gap. However, a lot of people are always under the assumption that “they’re just out to get you” regardless of what you have, there are alternatives should do to help minimize your risk.
Key areas that you need to be honest with some of the biggest triggers are the following:
Depreciation – You must have that equipment you take depreciation on. If you still claim that you have a calculator or a computer from 10 years ago and still putting it on your taxes, you will need to potentially produce the item should you be audited.
Donations to Charity – Is your family member or friend truly a 501(c)3 organization recognized by the IRS? You can’t just hand out money to people or “pop up charities” who are not recognized as a tax exempt organization. Although they may be collecting money for a good cause, it’s not a legitimate deduction.
Business Expenses – Can you really justify going out to eat with your family all of the time as a legitimate meals and entertainment expense because you discuss about how your day went with your wife or friends? Another stretch of the imagination is when you choose to take a family vacation, work while you’re on the road via the internet and phone, and write the entire expense off.
Contract Labor – Because you say that you “forgot” to file 1099s isn’t a legitimate excuse to take several thousand dollars in contract labor as a deduction. Someone needs to pay the taxes on this income, and if it’s not going to be the people who have worked for you then it’s going to end up being you as the business owner because the expenses will likely be denied. Although you’re not required to file a 1099 if that person is paid less than $600.00 per year, that doesn’t allow you the option of not having to collect at least a W-9 form before you pay them just for record keeping purposes.
About Our Show Advisor: Dwayne Briscoe is the founder and owner of Bookkeeping-Results, LLC. Dwayne began his company in January 2007, based on the foundation to educate small business owners and bookkeepers who use QuickBooks®. Working as a full-charge bookkeeper and trainer in a variety of industries for over 15+ years, he is a certified Pro Advisor with 5 certifications, including Enterprise Solutions and Point of Sale. He is also an instructor at Brazosport College in Lake Jackson, where he teaches basic accounting, QuickBooks®, and basic payroll, along with hosting his own private classes.
Bookkeeping-Results, LLC has focused more on quality and not quantity for their clients, by paying attention to the details. Through regular continuing education participation, as well as exploring additional ways of “thinking outside of the box” to help expand people’s knowledge of their own financial well being, it’s important to focus on not only saving the client money but also making the client money.