IRS audit rates are historically low, according to the latest data, but that’s little consolation if your return is among those selected to be examined. But with proper preparation and planning, you should fare well.
In fiscal year 2019, the IRS audited approximately 0.4% of individuals. Businesses, large corporations and high-income individuals are more likely to be audited but, overall, all types of audits are being conducted less frequently than they were a decade ago.
If you own or manage a business with employees, you may be at risk for a severe tax penalty. It’s called the “Trust Fund Recovery Penalty” because it applies to the Social Security and income taxes required to be withheld by a business from its employees’ wages.
If you operate a small business, or you’re starting a new one, you probably know you need to keep records of your income and expenses. In particular, you should carefully record your expenses in order to claim the full amount of the tax deductions to which you’re entitled. And you want to make sure you can defend the amounts reported on your tax returns if you’re ever audited by the IRS or state tax agencies.
Many business owners ask: How can I avoid an IRS audit? The good news is that the odds against being audited are in your favor. In fiscal year 2018, the IRS audited approximately 0.6% of individuals. Businesses, large corporations and high-income individuals are more likely to be audited but, overall, audit rates are historically low.
There’s no 100% guarantee that you won’t be picked for an audit, because some tax returns are chosen randomly. However, completing your returns in a timely and accurate fashion with our firm certainly works in your favor. And it helps to know what might catch the attention of the IRS.
The chances of IRS audit are down, but you should still be prepared.
The IRS just released its audit statistics for the 2018 fiscal year, and fewer taxpayers had their returns examined as compared with prior years. However, even though a small percentage of tax returns are being chosen for audit these days, that will be little consolation if yours is one of them.
One of the questions we get asked most frequently is about how long documents should be kept. Here are some general guidelines based on our experience and federal statutes of limitations for income tax purposes. Your state may have longer statutes, so use this list as the guide, not the rule.
Hopefully we are past the media craze about a guest on the Dr. Phil Show. Today we need to talk about what it means to have a cash-based business.
There is nothing wrong with having a business that has a high percentage of payments coming from cash. Beauty salons and food establishments are just a couple of places where paying with cash is common. Even paying expenses in cash is fine. It's all about the documentation.
IRS concerns about scams and identity theft don't extend only to taxpayers. Criminals also impersonate IRS officials in efforts to take your money or gain your confidential tax information. Most of us have received or heard about bogus phone calls from these scammers, but sometimes they go the extra mile and show up at your doorstep.
Schedule C is an attachment to your personal tax return to report business income and expenses. Most often it is used for reporting small, side businesses, such as for a homemaker that also sells makeup, or an office worker that also does lawn care. There are no limits, though, and it can be used for much larger, full-time business activities. (I’ve seen it used for a sales business that exceeded $1 million a year in gross revenues!)
Any given individual income tax return has only a .84% chance of being audited by the IRS. That's equal to 1 return out of every 119. The odds seem pretty favorable, but those numbers are for the entire spectrum of income earners.
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