IRS stands for Internal Revenue Service, which is a routine practice performed to check whether or not the financial records of businesses are in check. While you may have heard that the IRS is not something to be happy about, people are more concerned about it.
However, IRS is not necessarily only conducted when there is wrongdoing by the business owner and discrepancy has been found in the business. IRS is instead conducted randomly, and the analysis of tax returns is made and compared as well.
In the United States, business owners need to stick to specific tax laws and regulations in order to avoid any complications. While it is important to remain cautious, you need not worry as the audits are only conducted 1-2 percent of businesses each year.
However, you should consider consulting an international tax accountant if you have businesses overseas and want to keep everything in check.
When people have businesses in other countries, they need to be extra careful as the laws are going to be different. Having a professional who can look at companies internationally is, therefore, quite important.
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What are the triggers when it comes to IRS audits?
There are certain things that make it more likely for your business to have an audit. Therefore, in order to avoid it, you need to make sure that you are not doing the following things:
- Not reporting salaries of corporate employees.
- High deductions on home office
- Claiming losses in business and that too for several years.
- Making use of round numbers.
- High meal deductions.
However, you need to keep in mind that this is not the complete list, and you need to look into other things as well. A professional can educate you about these things in detail.
Furthermore, this is not indicative of an IRS audit but increases the chances of getting one. These are just alarm bells that you, as a business owner, should remain aware of.
What are the things that the IRS focuses on?
There are specific activities in businesses that IRS audits take note of keenly:
Meals, entertainment, and travel during business meetings:
For IRS auditors, these things are in their target. Therefore, it is essential that you keep all the records wherever you go, including the meals you have, travel expenses, and everything else that needs to be documented. Keep a receipt of everything.
Cash businesses:
Since it is easier to underreport for business owners, they are at a greater risk of going through audits. In such cases, there is difficulty in proving the total income. You, as a business owner, need to avoid such things from happening, and a professional can help you with that.
What are the different types of audits?
There are three types of audits conducted; let us briefly discuss them one by one:
Correspondence audits:
A letter was issued to people whose businesses were to be seen by the auditors. They might ask for any additional documents that you need to provide within the stipulated time period. You need to make sure that you are making any mistakes.
Office audits:
With the passing of time, these types of audits are becoming less common and are not seen much. There are some specific documents that the person might demand which need to be provided as soon as possible in order to avoid further complications. They need to deliver them to the office of IRS auditors.
Field audits:
When the IRS comes to your business on its own, then it will be called “field audits.” This is considered to be the most comprehensive of the three. Whatever they ask for, any document or records from the previous years, everything needs to be provided on time.
How can an accountant help?
As discussed earlier, accountants have the knowledge of everything related to taxes. They can tell you what you are supposed to avoid and what you need to do in order to reduce the risk of triggering audits. Reach out to a professional today and make things easier for your business.