One of the biggest pains, when you own a corporate business, is filing taxes. It is important to work with a corporate tax prep service to help you with filing at the end of the year, even if you are already working with an accountant. If not, you are at a higher risk of being audited and fined, costing you time and money. Take a look at some of the most common reasons corporate business owners are audited by the IRS.
A corporation's deductions are large compared to the profit.
If you have substantial deductions listed on your tax return, that alone can be enough to trigger an audit by the IRS. For example, if your corporation made $1,000,000 for the year and your expenses racked up to $900,000, this would likely be enough to nab the attention of the IRS. It's simply not a common thing for businesses to have expenses that reach so far into their profits, so it makes it look like there can be some overestimating to avoid paying taxes, even if there was none. Of course, there are legitimate situations when expenses can be much higher than anticipated; it is, nonetheless, best to be prepared.
A corporation has a major profit.
The higher your income is, whether you are a corporate business owner or an individual, the more risk you have of being audited. It is not necessarily that making higher profit is a bad thing, especially since the IRS gets their cut from taxes, but those who report higher income levels often have more to gain by over-reporting expenses. Therefore, the IRS is more stringent with large-income tax returns. They will spend more time reviewing them and more time pulling an audit if something looks remotely out of line.
A corporation's expenses don't line up with the business.
This is one thing that many corporate business owners get into, if they have certain types of business expenses listed on their tax return, such as travel or equipment purchases. Basically, if an expense is listed on your return that does not seem to line up with the type of business you have, you may be audited. For example, if you own a retail corporation and show expenses for investing in vehicles, this may look odd in the eyes of an auditor. It is important to have proof of a clear business connection for any expense deduction you list in your return.Share