By Janathan L. Allen, APC of Janathan L. Allen, APC posted in IRS on Tuesday, January 20, 2015.
In a recent article by “Consumer Reports” there were a few recommendations for home based businesses to reduce IRS audit risk that I absolutely agreed with based upon recent IRS behaviors with our own clients. If you have a home based business or are an employee claiming unreimbursed expenses on Form 2106 make sure that you have scrupulous records for all travel, mileage, meal, telephone and entertainment expenses, as well as any client gifts you may have purchased in 2014. Home based offices are rumored to always be a trigger, and the two absolute rules of thumb are that the square footage of the office when compared to your total home is as accurate as possible, and that the office looks like an office, and is used for no other purpose than to conduct business.
IRS audits are a concern for all of us, especially those of us who own a business. The IRS is desperate to increase revenues, and with recent budget cuts remaining revenue officers must be even more aggressive to generate tax revenues. The process of identifying which returns to audit is almost based upon a “bell curve”, an algorithm that defines the IRS standards or “norms” for the item in question. The IRS is looking for those who fall outside of the acceptable range and this is where your greatest risk for an audit lies. If you are contacted by the IRS for any reason, I highly recommend that you seek advice before responding to the IRS – especially if they are asking for additional information. There is only one reason to ask for information – to use it against you to increase the amount you owe. Cooperating with the IRS does not ingratiate you to the revenue officer, and will not make the audit go more smoothly. We manage all communications with the IRS for our clients to protect them, and to prevent them from disclosing too much information, or worse, the wrong data allowing the IRS to widen the scope of the audit and go back into prior years.
Your first and best audit defense as a business owner, or if you have substantial assets or offshore accounts and property is to contact us to discuss the preparation and filing of your taxes. Call for a free initial consultation at 866-631-3470.
