Failing to abide by various tax laws can lead to a financial audit by the IRS. While the causing error may be minor, the process can be costly and time-consuming. Such procedures can also halt your business if the IRS freezes your accounts, leading to significant losses and a lower client retention rate.
While it is not a guarantee, taking some precautions when running a business and filing taxes can reduce the chances of an IRS audit. Here, we discuss six of those factors to help you protect your business and avoid penalties.
1. File Taxes Within the Provided Time
Sometimes, you may not have enough money to pay all the taxes you owe the IRS. Regardless, it is essential to ensure you provide your revenue information by filing back taxes. This step indicates that you acknowledge owing money and will pay when possible.
It also allows you to apply for various IRS programs to stop penalty accumulation. These may include an offer in compromise, installment payment, and currently not collectible.
If you do not file past taxes before the provided deadline, you may raise suspicion with the IRS leading to a financial audit. It also affects your chances of qualifying for relief programs to help you repay what you owe in the long run.
2. Claim the Right Deductions and Exemptions
Claiming a higher deduction or an exemption you do not qualify for can cause trouble with the IRS. Protect yourself from tax bills and penalties by ensuring the exemptions you claim are correct.
If you have limited knowledge about this procedure and its requirements, consult a professional. By taking this measure, you can determine what you qualify for and avoid an IRS audit.
These experts will also ensure that all the details you provide when remitting taxes are correct. For instance, they will counter-check your W2 and Form 1040 to ascertain that the information provided by your employer matches yours.
3. Submit Payroll Withholdings
If you are an employer, it is essential to remit all employee tax deductions to the IRS. Besides that, ensure you submit payroll reports to indicate how much your workers earn and their total tax payable.
Since processing this information manually is challenging, it is advisable to get payroll software. Such platforms can reduce the chances of making tax errors related to payroll, protecting your company from audits.
4. Provide the Right Documents
When claiming a tax refund or deduction, you should attach supporting documents to avoid fines, penalties, and audits. Some of the needed items are:
- Form W-2 for the employed
- Form 1099-G for the unemployed
- Records of additional income
- Records of expenses
Other than that, it is advisable to attach canceled cheques, receipts, and explanation letters. While these documents may not be legally necessary, they can significantly reduce the chances of an audit.
5. Confirm Your Figures
One aspect that may raise a lot of suspicion with the IRS is submitting wrong tax calculations. Prevent such mistakes by double-checking your tax forms before sending them. Moreover, consider filing your taxes electronically since it notably reduces the chances of making errors.
Another way to ensure you provide the correct figures is by gathering all your financial details before starting the filing process. This way, you prevent including unconfirmed information about your income or expenses.
6. Avoid Rounding Off
While working with whole numbers when filing taxes may appear simpler, it may land you in trouble. Truncating or rounding off your figures can lead to inconsistency between your tax forms and financial documents.
Reduce the chances of an IRS audit by using figures as indicated on your payslip or receipts. This measure will increase calculation accuracy and ensure your supporting documents match the information provided to the IRS.
Contact Tax Industry Today for Professional Services
Filing your taxes without professional help can increase the chances of errors, leading to audits. At Tax Industry, we offer professional filing services to help you avoid issues with the IRS.
Our experts will use your financial documents and information to calculate what you owe and ensure they submit the correct information. Reach out to us today for reliable tax preparation and tax resolution services.