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How Small Business Owners Can Protect Themselves From the IRS

Can an IRS agent actually throw the book at you for a simple BOOKKEEPING mistake? Well, I'm afraid the answer is YES - even if they catch just a little decimal point error you did NOT mean to do. There's no question - IRS audits can be TIME CONSUMING!

They are not only TIME CONSUMING, They are COSTLY. The IRS can levy on wages, ruin your credit, get your records by force if necessary, seize assets, and even sell your home. Last but not least they can throw you in Jail!


REMEMBER THIS IS THE AGENCY THAT SENT AL CAPONE TO JAIL WHEN NO ONE ELSE COULD!

And you can rest assured no IRS agent is going to show up on your door step offering to give you an extra check for the tax refund money you didn't know how to claim. (But if you owe THEM money now that's a different story. They'll be on you like white on rice!)

Oh, and just for the record, I was at the IRS annual conference in Dallas, TX, where the head honchos from the IRS said, "THE SMALL BUSINESS IS OUR LARGEST AUDIT GROUP". Why would the IRS want to go after you the small man on the block? The IRS believes their biggest compliance (Deadbeat companies not paying their fair share) issue is with the small business.

But, how does the IRS know who they are going to pick for an audit? Do they roll the dice or do they let a monkey throw darts at a list of names? The IRS computers have a check system named "DIF" short for Discriminate Function System. The computer system scores the tax return you file and assigns points according to DIF criteria. The DIF criteria are as secret as our Nuclear Command Strike Codes, but we can make educated guesses because it is intended to make the IRS money.


The 6 Things Most Small Business's Can do to keep the IRS off their back:

1. NOW WHAT THE IRS THINKS ABOUT YOUR INDUSTRY! The IRS has written Industry Specialization programs which tell their field auditor how to deal with each specific industry. These read like a stock offering prospectus. Very dry and tough to understand. (*WARNING: Small Businesses claiming deductions which are more than the industry standard might as well waive a flag asking the IRS to audit them.)
2. REPORT INCOME YOU EARN FROM THIRD-PARTY PAYERS! A lot of people do not keep records on a monthly basis and do not know exactly how much money they have been paid. You can bet your bottom dollar the clients who paid you will report that money (if it is over $600 and they want to take a deduction they are required to report it to the IRS). If what you report as income and what they report as being paid does not match go ahead and waive your "I want an audit flag."
3. USE THE RIGHT FORMS! The IRS loves forms. It has hundreds from which to choose from each year. There are numerous forms that need to be filed during the year (monthly and quarterly) and forms that are filed at the end of the year. Even if you have the right form you must fill it out correctly. Using the wrong form or filling the form out incorrectly often results in an audit. Go ahead and waive your flag.
4. KEEP IMPECABLE RECORDS OF INCOME AND EXPENSE! One of the biggest problems for the small business is a lack of good bookkeeping. Most Small Business owners know how to make the money. They do not have the time to track all of their income and expenses. Yes, waive that flag and while you are at it scream at the top of your voice, "I WANT THE IRS TO AUDIT ME."
5. USE ONLY EMPLOYEES, NOT INDEPENDENT CONTRACTORS! The IRS has been fighting small business owners such as yourself for years over the tax classification of sub-contracted workers. ARE THEY EMPLOYEES OR ARE THEY INDEPENDENT CONTRACTORS? This is a very important question as you could be making yourself liable for payroll taxes, penalties, and interest.
6. HIRE A PRO!! Using a professional accountant does not, by itself, reduce your audit selection score, but it can help in a number of ways. First, the accountant will spot troublesome deductions or omissions of income that could trigger an audit. Accountants are also trained in payroll taxes which is another soft spot for the IRS. They love trust fund penalties and if they notice problems with the payroll taxes they will dive right in looking for other areas of NONCOMPLIANCE.

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