What red flags relating to business taxes could lead to an audit?

Running a small business is a dream of many Texas entrepreneurs. Recently, taking the steps to get a business up and running may have finally seemed appropriate. However, it is time to consider the tax obligations of that business. If owners have not filed business taxes before, they may understandably fear that they will be audited.

The possibility of an audit does exist, especially for small business owners. While it is a relatively small number of individuals and businesses that do get audited by the IRS, it is still important to know what could make the IRS more likely to take another look at the documents of a business. This information may help owners either prepare for the possibility of an audit or avoid an audit by ensuring that their information is correct and does not raise any red flags.

When it comes to looking into what the IRS may consider a red flag, the following examples are common reasons the IRS audits small businesses:

• making excessive deductions
• earning a high income, particularly $1 million or more
• reporting excessive business losses
• claiming numerous deductions
• reporting a considerable number of expenditures

Of course, it is also critical that business owners report factual information. Even if something looks excessive, if those numbers are the facts, owners have an obligation to report them. In the event that Texas owners do face an audit relating to their business taxes, they may want to remember that they have options for handling the issue as well as possible. Audits do not always mean that a business owner will face negative consequences, but it is important to be prepared nonetheless.