Small business owners face countless challenges in getting their companies up and running. Start-up costs, overhead, building a client base and other operating fees can make it difficult for a new company to achieve success. An audit by the IRS in particular can cost money that should be spent growing the company. Audits can devastate new businesses, but proper steps can help business owners to avoid the government’s investigation of their business. Here are five tips to prevent an IRS audit.
1. Pay attention to online sales tax
Many states have written new laws requiring digital companies to pay sales tax to the state. While this law varies from state to state, it only applies if your company has a large physical presence headquartered in that state. If your company is found to be noncompliant with these laws, you will be responsible for all unpaid sales taxes, as well as interest and penalties. These fines could put a new company out of business, so be sure to verify your state’s laws if you are selling products online.
2. Be especially aware if you’re self-employed
If you are self-employed and have not incorporated your company, you are still responsible for paying taxes. The IRS outlines your responsibilities on their website. In addition to standard income tax, you must pay a self-employment tax, which covers Social Security and Medicare. You should also pay quarterly estimated tax based upon your estimated income. Be sure to use all available forms and guides to prevent an IRS audit.
3. Outsource payroll
Keeping your payroll in-house can add to the stresses and demands of running your own business. Even the most astute bookkeeper can make a mistake if they are focused on other tasks. Outsourcing your payroll to a company like Paycor can take your mind off of the logistics of payroll and let you focus on your main goals to grow your company. The automatic payroll and professional staff help make sure your payroll will not incur an IRS audit.
4. Meet filing deadlines
Even if you will file for an extension, you must pay any taxes owed by April 15. While this may seem unfair, especially if you are filing for an extension on your return, paying on time will show the IRS you are making an effort to pay what you owe in taxes. Meeting all filing deadlines will also help you avoid potential liens and levies against your business and property, which could cause irreparable harm to a new business. Work with your tax preparer to make sure your return will be filed on time.
5. Sign your return
Seriously, sign your return. Thousands are submitted to the IRS every year without a signature, which requires contact by the IRS. If they have to contact you to verify your return, it is likely they will look more closely at the form you forgot to sign. Be sure to double-check all forms and fields before sending them to the IRS to help prevent an audit.
While an audit by the IRS may not mean you have done anything wrong or illegal, the time demanded by this legal process can make running a small business difficult. Verifying all of your information and outsourcing what tasks you can will help you keep your business growing, your tax return accurate and prevent any undue attention from the IRS.