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Dice Financial Services Group
1716 N. Sanborn Blvd, PO Box 790
Mitchell, SD 57301
Phone: 605-996-7171
Toll Free: 800-658-3603
Website: www.dicefinancial.com
January/February 2023
Preventing and Surviving an Audit
The possibility of an IRS audit is typically unwelcome news for business owners. Recognizing the most common audit triggers may help you avoid them. But, if your business is selected for an audit, having all your information organized, with help from your tax advisor, can get you through it.
Red Flags
While the reasons for selecting a return for an audit can vary, the following are frequently triggers:- Not reporting all your income, especially if you receive cash payments.
- Failing to comply with employment taxes. You’re responsible for paying your share of FICA and Medicare taxes on your employees’ wages, in addition to withholding the employee’s portion of these taxes.
- Mixing business and personal expense deductions. Business expenses, such as meals, entertainment, travel, and car rental, require documentation in an audit, so be sure to keep good records.
- Claiming losses or not showing a profit year after year. Failing to ever report a profit means the IRS may question whether you really have a business. Without profit, your business may be classified as a hobby.
Survival Gear
Organization is the key to surviving an audit. It starts with keeping accurate and complete records.- Business expenses must be “both ordinary and necessary.” That means expenses must be common in your industry and necessary to run your business. Examples include office supplies, computer equipment, printer paper and similar items.
- Use a spreadsheet program to track cash flow, income and expenses. Consider using apps to upload receipts, keep track of mileage, and generate reports.
- Make sure you have supporting documentation, including cash register tapes, deposit information for cash and credit sales, invoices, receipts, canceled checks, proof of electronic fund transfers (EFTs), and account statements.
- Open a checking account and a credit card strictly for your business. Never mix your personal finances with your business accounts.
During an audit, the IRS will want to see bank statements, a balance sheet, income statement, tax returns, loan and lease agreements, and proofs of purchase for equipment and assets. Your tax advisor can help you assemble the necessary documentation.
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Securities and investment advisory services offered through Royal Alliance Associates, Inc. [ RAA], Member FINRA/SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. Insurance Services offered through Dice Financial Services Group.
Thomas J. Dice, Jerauld Garry, Michael LeBrun, Jacquelyn Johnson, and Jesse Tolsma are registered representatives of and offer securities products and services through RAA. In this regard, this communication is strictly intended for individuals residing in the states of AZ, CA, CO, CT, FL, GA, IA, ID, IL, IN, KS, MN, MO, MT, NC, ND, NE, NY, OK, OR, SC, TX, UT, VA, WA, WI, and WY. No offers may be made or accepted from any resident outside the specific states referenced.
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Thomas Dice offers additional investment advisory services through RAA.
Fixed and/or Traditional Insurance Services offered through Dice Financial Services Group.
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