Avoid These IRS Audit Red Flags

No small business owner wants the inconvenience, hassle and stress of an IRS audit. Audits can never be completely avoided because in some cases businesses are randomly selected for audit. The good news is there are steps you can take to reduce your chances of being flagged for audit due to error.Chron recently published a list of red flags that may trigger an audit, so you can learn what to avoid.

Chron’s list includes:

  • Mis-matched social security or taxpayer identification numbers or names between your return and W-2 or 1099 forms
  • Self-employment
  • Disproportionate income vs. deductions
  • Tip earning
  • Hefty write-offs
  • Business losses
  • Deductions for gifts or entertainment

For the full list of audit triggers and explanations for each, visit Chron Small Business.

Have you ever been flagged for an audit, randomly or otherwise?

Is DIY Accounting a Business Owner’s Best Choice?

Entrepreneurs don’t just wear a lot of hats because they’re masochists. They do it–you do it–because you’re trying to bootstrap a company, and that means keeping costs down.

However, some DIY efforts are actually more costly than bringing in outside help, even with the help of software programs like QuickBooks. The software, after all, can only work with what you tell it. If you make errors, it will make errors too.

And many of the terms that QuickBooks uses are unfamiliar to the average entrepreneur, which meaks those kinds of errors very easy.

A recent article on Entrepreneur.com covers the benefits of getting outside help with your business finances.

Entrepreneurs who hire accounting help usually discover they weren’t doing nearly as well on their own as they thought they were.

Entrepreneurs typically make the mistake of believing that they have to hire accounting help full time to reap the benefits. Or they assume that they have to go with a huge accounting firm that will cost them thousands of dollars every month.

Neither extreme is correct. As Entrepreneur suggests, a dedicated helper who knows your business can do a lot with just a few hours.

One thing the article does not address is the earliest stages of a business: the point when you’re still putting together your business plan. A good accounting team can help you decide whether there’s going to be a high enough profit margin to make your venture worthwhile at all. You may need to adjust pricing or go back to the drawing board if it isn’t.

The SMB Shared Teams Accounting Division can help with any of these tasks. We can help you make the most of your money in an existing business or we can help you evaluate a start-up plan. Our rates are very affordable and entrepreneur-friendly…and often they pay for themselves after we save you a big chunk of change on your taxes or show you an expense that can be cut to make your venture more viable.

Accounting in the Cloud

Our technology team recently talked about how it is now possible to move your entire multi-line phone system to the cloud. As it turns out there are ways to move all of your accounting functions to the cloud as well.

Some options include FreshBooksQuickBooks Online, and Xero.com. These programs offer all sorts of features such as invoice creation, inventory support, cash flow tracking, bill payment assistance and more.

While many small business owners might be concerned about security, Small Business Network reports that security concerns are about the same as they would be for locally hosted systems, unless your systems are completely offline.

There are certainly some cost-savings involved in moving your accounting data to the cloud. Cloud-based services can save small business owners both money and time.

They cannot, however, magically give you accounting expertise. If you don’t have an in-house accounting staff and you’re not an accountant yourself it is still a good idea to get some help from an expert. These programs are only as smart as the data that you put into them, and with tax-time coming up it’s more important than ever to understand, say, where you can safely take some deductions so that you lower your overall tax bill.

Fortunately, our shared teams give you cost-effective access to an accountant who can help you take care of your business. Getting expert help doesn’t keep you from using cloud-based tools as well. It simply gives you access to a professional in a virtual office who can help your business stay strong financially.

How to Stop Stressing Over Audits

The prospect of getting audited by the IRS is one of the most stressful parts of being a small business owner. But the truth is, there are some simple things that you can do to avoid audits, and audits themselves may not be as scary as you thought they were.

A recent CNBC report helped to identify IRS red flags. They actually don’t apply to many businesses. And if your business makes less than $10 million a year you have less than a one percent chance of getting the kind of full-on, agent-in-your-face audit that most small business owners fear.

“If the IRS is coming to you, they think there’s something there, and you’ve got some explaining to do,” said Daily. But such field audits are rare: the suspected fraud must be substantial enough to justify the expense of sending an agent to your place of business to review those past years’ returns. “The most common audit nowadays is the correspondence audit,” he said. “It’s really more of an edit correction.” Then, the IRS asks you to mail in more documentation—or even just sends an invoice for tax and fees owed after auditors discover a mistake (say, math errors, or a missed 1099 for a small amount) and recalculate the return. “There should be no problem if in fact the documentation exists and you have it to send,” said Daily.


Of course, none of this is a good reason for trying to tackle your business for yourself, especially if your deductions are complicated or subject to special rules. One sure-fire way to eliminate audit stress is to get expert help with your tax return.

The tax deadline is coming up fast. Contact SMB’s Shared Accounting Teams today if you are interested in securing tax help for your business.