A disturbing trend is emerging from the IRS– they are targeting more and more small businesses for examination (audits). According to a Syracuse University study, the IRS has increased audits on small businesses 41% since 2005. The IRS is getting bolder, more aggressive, and small businesses are losing. But did you know that good records can save your hide in an IRS audit, and sometimes even “pay” you back? This article explains how.
The worst part of all this is the IRS’ increasing use of the 6694 and 6695 penalties, which are applicable to professional preparers who the IRS has deemed as having “overstepped their bounds”. Even ethical preparers are afraid of getting hit with this penalty, so preparers are more and more reluctant to take deductions for their clients, even legitimate ones. These penalties apply even if a client doesn’t pay their bill– just the fact that a preparer intended to charge the client is enough.
The best remedy for this is just plain old good record keeping. Moving to a completely electronic method of bookkeeping is the key. Scanning receipts, entering transactions in Quickbooks, and keeping an adequate paper trail are the key to success in an IRS audit.
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