In past years the IRS has reported a low number of audits of small businesses, however they have stated that in the future they intend to increase by about 50%. This is hard on all of our small businesses because of a list of things such as COVID-19, complex tax law changes, and stimulus packages.
These measures have made books much more complicated than in past years, which create more concern around an increase in IRS audits. Because of this, ICPAS (Illinois CPA Society) states that these will lead to an increase in enforcement actions for long-owned family businesses to newly started online companies since the pandemic began. The IRS intends to hire more qualified people to be able to raise the number of audits. Here are some tips to follow:
- Make sure that you report everything honestly and that your records are simple to understand and neat. Have all the documents you need to support your reporting.
- Be careful with your deductions. If you are claiming odd deductions, it will get an auditor’s attention, as it is uncommon. If you have unique deductions, then seek the help of a CPA who can guide you.
- Try to estimate accurately and pay quarterly tax payments. Failing to do so might raise the possibility of an audit or even penalties.
- Keep digital records to make documentation easy to find. You can use online technology to assist with your record keeping, share documents with your CPA, and help keep you organized.
- Make sure you are aware of the rules. If your small business was started as a partnership, it is very important to check if you are subject to the Centralized Partnership Audit Regime because that greatly changed the audit process.
Tax law is constantly changing and can be confusing. We recommend finding an expert to help you with your bookkeeping and tax preparation. We are available and excited to assist you as well!
Enlisting help will be a wise decision for your business this year, especially with everything that has been different because of COVID. Please feel free to reach out to us at firstname.lastname@example.org or (310) 534-5577 with any questions if you are seeking help in this process.