Your personal and business operations are too precious to be threatened by an IRS audit. Today, we wanted to talk about the biggest IRS audit triggers for small businesses. Mistakes Though there are few audits triggered by mathematics mistakes, the IRS has a computer trigger called the Discriminant Information Function (DIF) that scans tax returns and looks for certain things like duplicate information, and other mistakes. For example, a person or business with $100,000 in income likely won’t have $60,000 in charitable deductions, and DIF can catch that. Most mistakes that individuals and businesses make most often include writing Social Security and Tax Identification numbers incorrectly. Luckily, a good second look at your tax forms once they’ve been filled out can save you a lot of headaches. Home Office & Self-Employment One of the biggest audit triggers is the misrepresentation of home office items and self-employment expenses or income. Home office and home business deductions were difficult to navigate before the pandemic forced a lot of people to work remotely. There are a lot of rules you must follow for your expenses, equipment, and office space. It’s also important to note that your office and home business equipment must be used exclusively for your business for them to qualify for the deduction. Because of the complexity, the IRS often sees the home office section of the tax return as an opportunity for audit. If you plan to take advantage of these deductions for your business, you should also be prepared to prove that these items (from cars to tablets to other materials and utilities) were used solely for business purposes. Missing Income Gig workers are more prevalent than ever, which means the IRS is looking for unreported freelance and independent contractor income, either from your business payment perspective or the freelancer’s reporting. High Deductions Claiming deductions that seem disproportionate to your or your …
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