Red Flags That Could Result In The IRS Auditing Your Business

By: Rachel Raupp

Business owners far and wide know there is one thing you try not to do: get the IRS involved. The best (and only) way to make this happen is to be careful and make sure you are doing everything correctly. We’ve compiled some activities that could be red flags to the IRS and could result in an audit. The best way to avoid an audit is to run your business in an honest and healthy manner.

Something as simple as consistently filing your taxes late can be a red flag and attract the IRS’s attention. This is easy to avoid. Making what seems to be an unreasonably high salary can draw attention to your business, as well. Whether the employee is also a shareholder of the company or if they are given a raise dramatically, it could very well result in an audit. To avoid this, before giving an employee a raise, check to see what the average is for that position in your industry. 

Having too many deductions on your taxes can be a red flag, as well. Choose your deductions wisely. To keep yourself on the safe side, take the IRS’s advice when they say deductions are anything that qualifies as “ordinary and necessary” in your industry. When working on your taxes or books, don’t round numbers or miscalculate. This could lead to incorrect math, which draws unwanted attention from the IRS and could be deemed as suspicious activity.

A red neon sign will be flashing over your business if most of your transactions are done in cash, especially large sums of cash. It’s best to use debit or credit cards for making purchases so you’ll have a paper trail and exact records. If you must use cash, make sure to record this information in an accurate and detailed manner.

Although these are only a few of the possible red flags that could result in an audit, keep them in mind when working on your taxes or running your business. Bookmark the page for easy access when needed. The best way to ensure your business will not be audited is to remain true and decent. Double-check your math, record transactions, and do things the right way.