Video instructions and help with filling out and completing Can Form 2220 Audit

Instructions and Help about Can Form 2220 Audit

I think we can all agree that being audited by the IRS is the financial equivalent of going to the gynecologist or proctologist for a checkup it's awkward cold and invasive so if we can avoid it why not here are 10 red flags that make the taxman snap on his rubber gloves for you number one having more contractors than employees it's tempting to classify your workers as contractors rather than employees since it can alleviate your business from the stress of handling payroll taxes the IRS is on the lookout for businesses that mislabeled workers to cut corners and it is especially suspicious of businesses that have a lot of contractors number two claiming miscellaneous deductions if you want to avoid not it do your best to avoid claiming too many deductions categorized as miscellaneous or other under Schedule A instead itemize your expenses in the most relevant categories in Schedule C and if you have a more unique deduction do your best to clearly explain what it is number 3 extremely high executive compensation because high salaries reduce a company's overall income and therefore their overall tax liability the IRS takes a close look at high income earners and shareholder employees in C corporations number 4 an inconsistent social media profile yes you heard right if auditors are suspicious of unusually high deductions they will seek out any available information to corroborate your tax claims sometimes this involves looking at your social media activity Facebook and Twitter are double-edged swords when it comes to our professional lives so if you're planning to deduct business trip expenses on your taxes be careful about tweeting photos that make it look like a party vacation rather than a professional excursion number 5 family members on your payroll it's certainly not uncommon to hire a family member but the IRS will want to make sure you're not simply trying to get more money out of the business or give family members gifts with less tax liability nepotism and business have gone hand in hand as the beginning of time that said just be sure that if you have any family members working for you they're actually we're the hours specified and aren't suspiciously under-qualified or inactive in their position number six reporting your net income rather than gross revenue for example if someone purchases your product on Amazon you may receive an Amazon payment with the processing fee already taken out you should report your gross income the total amount before the fee was taken out in part one and then report the processing fee as an expense in part two number seven excessive home office deductions although the IRS has slightly loosened its grip on home office deductions they are still widely considered a red flag if you are claiming a hefty deduction in comparison to your business income be especially wary if you are claiming both a home office and a rented office space more than 50% of your home or a lot of expenses for home maintenance and utilities number 8 missing any tax related deadlines this one should go without saying but failing to meet any deadlines set by the IRS makes you appear inconsistent and increases your likelihood of an audit this doesn't only apply to your annual tax returns other deadlines such as your quarterly estimated tax payments are just as important number 9 using the wrong accounting method there are two basic accounting methods cash accounting and accrual accounting most companies can use the accrual method but not all companies should use the cash accounting method learn the difference between the two and make sure that you are using the correct system before filing and finally number 10 self-employed travel and entertainment being self-employed or a sole proprietor makes you a bigger target for the IRS right off the bat you will need to meet rigid substantiation rules in order to deduct meals flights hotels and other travel expenses especially when deducting entertainment and food expenses keeping a receipt is not always enough keep detailed records of the location who was in attendance and the purpose of the gathering these days having our smartphones on us at all times there's really no excuse not to be able to document and record every detail the final step last but not least if you really want to avoid being flagged by the IRS one of the best things you can do is a file using online software significantly reduces your chances of an audit since all of your numbers and errors will be checked by the system before submitting tax software like TurboTax can point out potential red flags and help predict your likelihood for an audit so you can clear up any issues before filing a filing also reduces the risk of being flagged for illegible or unclear handwriting if your taxes are especially messy consider completing a risk assessment with an accountant if you are at a high risk of an audit your tax preparer can suggest ways to lower your odds it can help you rest easier when April rolls around the lights for one having more contractors and employees contractors contractor earners and share holding the share hold in place sure