Free Online Article Directory. For Article Authors & Publishers
IRS Identifies Key Audit Areas for Sole Proprietor LLC's
Small business owners operating as single member LLC's have consistently been the target of IRS audits. They file their business income and expenses on Schedule C of their personal income tax returns. The individual business owners, often called "solopreneurs", have a big, fat bull's eye on their backs when it comes to tax compliance. Why?
The IRS has determined that small business owners filing schedule C have the most likelihood to be underreporting their income or overstating their expenses. This information is based on research done by the National Research Program (NRP), the arm of the IRS that collects data to measure taxpayer compliance.
The IRS has determined the following areas are where most of the "cheating" occurs. If this sounds like you, it's time to stiffen up your record-keeping and documentation for 2010 in order to minimize the downside if you are audited by the IRS.
The primary audit areas are:
1. Income - IRS suspects are many small business owners are under reporting their income, not reporting cash income, and/or not properly reporting income earned from barters and cancelled debts.
2. Car & Truck Expenses - IRS suspects that many small business owners are overstating their expenses by either not reducing their costs by their personal usage or by overstating the number of business miles actually travelled every year.
3. Travel & Entertainment - IRS suspects that small business owners routinely charge personal travel and meals against their business. Only ordinary and necessary business related expenses for travel and entertainment are deductible.
4. Rents - IRS suspects that business owners that own buildings that are being rented from them by their business are overcharging their business for rent in order to avoid self employment taxes. Rents must be "reasonable" and reflect current market rents for the area.
5. Sham Businesses - These are write-offs by individuals who really are not operating a business but are trying to write off the expenses of their hobbies against their other earned income. Be sure you are operating your business like a business if you expect to get the write-offs that are available to a business.
6. Independent Contractors - the IRS suspects that small business owners are treating employees as independent contractors to avoid the payroll taxes associated with employees. If you have independent contractors that you are paying, be sure that you are in compliance with the rules that differentiate employees from independent contractors.
There are definitely steps you can take to minimize the risks of being audited in these areas. Proper documentation of deductions is the key. For example, proper receipts, business mileage logs, and independent contractor agreements play a big role as to whether the IRS allows you to keep your deductions during the audit. Another strategy would be to select a different entity to run your business such as a corporation, S corporation or partnership. The proper entity selection is based on your unique circumstance and should be discussed with your tax advisor.
Author Resource:-
Ted Lanzaro, CPA owns and operates Lanzaro CPA, LLC, a boutique tax strategy, accounting and IRS debt resolution firm with offices in Shelton, CT. He can be reached by phone at 203-922-1742 or via email at Ted@lanzarocpa.com. You can visit his website at www.lanzarocpa.com.
Nobody likes doing their taxes and everybody dreads the approach of tax season. Take some of the apprehension away by being prepared in advance so that you can get your taxes done early.
If you own a small business, you may be pleasantly surprised to learn how your company can take advantage of the R&D (Research and Development) tax relief scheme.
How often can you say that your bank mailed you money? Thanks to a federal law that governs mortgages and escrow accounts, It happened to me. In 2011 my property taxes went down due to the housing crash (parts of Florida were hardest hit in the nation). Lenders calculate how much to collect each month for escrow based on the previous year's bills.
Payroll taxes can be confusing for business owners. There are many different types of payroll taxes, including both federal and state withholdings. In Nevada, individuals and businesses are not required to pay a state income tax, but business owners are responsible for several state payroll taxes, like the UI Tax and the Modified Business Tax.
Nearly everybody recognizes lottery winnings can utterly improve a individual's way of living. Individuals often dream about winning huge lottery jackpots to enable them to cease being tied down to ajob and spend their days and nights having fun on luxurious luxury yachts, taking a journey around the world, or anything else that captivates their soul.
Do you have piles of papers, stacks of statements and drawers stuffed with receipts? Part of preparing for tax season is being organized. The last few days of the year are as good a time as any to invest a few hours in organizing your piles.
This article describes the nature of the 2001 and 2003 Bush administration tax cuts and details the history of the legislation. It explores economic projections about the cuts and the current Obama administration proposals.
Whether it's your home or your business the truth is that doing taxes yourself is never fun. This is especially true if you are dealing with complex issues, which most people are when they get to a certain age. How do you know what amount of money goes where on a tax form, or what counts as a write-off.
The everyday use of professional income tax software is becoming vastly popular. Using a tax software makes filing your taxes to the IRS fast and easy. This may be a reason that it is becoming popular or because people like to keep files on their taxes which most softwares do for you. Tax softwares normally come with files that you fill out. Such as family, house, and marriage files.
Owing money to the IRS can have destructive consequences if action isn't taken. Hiring a CPA can be the best way to avoid losing your home to the government. A qualified CPA can file the necessary forms, develop the best strategy, and represent you before the IRS. With the aid of a CPA, you can reduce the amount of taxes that you owe.
![[Valid RSS feed]](http://www.articlelisted.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Theodore Lanzaro's Author Feed
Print This Article
Add To Favorites 