The IRS has announced it will increase audits of small businesses by 50% in 2021. Their claim is that with the complexity of the tax laws combined with the stimulus program, the 'little guy' has a much bigger chance of screwing up their tax return this year.
Here are a few tips from a great article on www.cpapracticeadvisor.com with the bottom line being it's worth the money to hire a Certified Bookkeeper who knows what they're doing and can keep your books straight. It might even PREVENT you from being audited in the first place.
Keep clear records: Accurately and honestly reporting all income, deductions, credits, expenses, and other figures can help keep an audit at bay. Making sure you have adequate documentation to support the figures reported on your business’ information return will make your individual tax return less likely to be have errors or be audited.
Mind your deductions: Unusual itemized deductions raise red flags for auditors, especially now that most taxpayers only claim the standard deduction. If your small business is driving you to seek unique deductions or report business losses, enlist the help of a certified public accountant (CPA) to guide you, because reporting losses for three years or more could increase your risk of an examination into whether you’re actually in business.
Make your estimated tax payments: If you anticipate owing more than $500 in taxes for your business entity throughout the year, you should be making quarterly estimated tax payments. Failing to make these payments raises your risk of an audit and/or penalties.
Go digital: Today’s bookkeeping software utilizes tools to keep your records accurate and secure, which helps your CPA electronically prepare and file your tax returns—the best method for preventing the filing of erroneous returns that might trigger an audit.
Read up on the rules: Since many small businesses are formed as partnerships, it’s important to determine if yours is subject to the Centralized Partnership Audit Regime introduced by the Bipartisan Budget Act of 2015, which dramatically changed IRS partnership audit procedures.
If you have questions, I can help. Let's take the terror out of your taxes!