Business

Common Mistakes That Can Lead to Tax Audit for Your Start-up Business

Like this Article? Please Share With Your Friends and Family
  • 299
  •  
  •  
  •  
  • 6
  •  
  •  
  •  
  •  
  •  
  •  
    305
    Shares

According to data, less than 1% of the tax returns have to undergo the auditing process which is conducted by the IRS. However, it does not mean that as a business owner you can sit idle with your process of tax return filing. Some mistakes with your tax return process can trigger tax auditing. If the IRS has conducted auditing, you have to face a lot of hassles. You need to deal with a lot of paperwork, and additionally, the auditors will check all your company documents on different dates. In order to avoid the hassles attached with the auditing process, you need to manage tax return filing with precision. It has been noted that business owners commonly make some mistakes with the tax filing process and that triggers tax auditing.

1. High Income

Tax auditing could be triggered for your business if it registers an abrupt increase in revenue. If you find that your business has achieved unusually high revenue, you should prepare yourself for tax auditing process. Make sure all your documents are ready. The invoices should be properly numbered and dated. In case of error in your database, you may have to suffer some losses. Database error can lead to penalization. To avoid the hefty penalties, you need to keep all your documents ready for auditing process, when you realize that your business is going to make high revenue yielding.

2. No Income or No Profits

If within a financial year, your business cannot show up significant income or profitability, you should get prepared for auditing. When your business shows no or minimal profit, the tax department presumes that you are trying to hide incomes so that you do not have to pay high tax return. Thus, auditing has been done against your business or company in such a scenario. It is quite impossible for a company to make no profit within a financial year unless it is undergoing some unusual circumstances. If business remains closed for a long time, profit will start dipping. So, keep all your important documents ready to be audited, when your business does not register significant profit as well as revenue earning in a financial year.

3. Unreported Income

People make some mistakes in tax return filing process. Sometimes, sources are not mentioned along with some income data. This happens by mistakes. In some cases, businesses may have lost data regarding such income sources. On top of these things, businesses do not mention some income data by mistakes. Such unreported incomes can lead to trouble for your business. Your business would have to undergo a strict auditing process. The auditing process can detect your mistakes and unreported income data. If this happens, you could be penalized. In order to avoid such a penalty, you need to be focused on reporting your income and their legitimate sources perfectly.

4. Illegitimate Business Deductions

If you notice that your business deductions do not make sense at all,you need to be prepared for tax auditing. A business could have different kinds of deductions. Sometimes, deductions have been shown to evade taxes by many businesses. As a result, the tax department has an obvious close watch on the businesses that try to evade the taxes. It focuses on the businesses that show abrupt deductions. If your business has too many deductions to feature, you can get prepared for the tax auditing process. Tax auditing would take some time, and thus it would be a tiresome experience. Thus, it is always better to keep the business deductions in control.

If you have loans in favor of your business name, you may get some tax deductions. But, the right amount of debt has to be checked. If there are too many loans, choosing debt consolidation is a good idea for the startups. It helps you to make your claim for deductions more specific or accurate. To learn more about this matter, you can check Nationaldebtrelief.com.

5. Too Low or Too High Property Rental Expenses

A business has to rent properties for running its office. In many cases, the business tends to purchase its office. In some cases, it opts for renting. In both the cases, a business has to make some financial expenses for the purpose of property renting. Nevertheless, systematic maintenance of the property is also required. For that purpose, some more funds have to be allotted. All these expenses regarding property renting and management have to be dealt with precision. In case of too low or too high property renting and maintaining expenses, tax auditing may be triggered. The tax department would like to understand the reason behind your low or high property rent. Thus, you have to keep all your property renting and maintenance related documents ready.

6. Not Enough Income to Make Huge Business Expenditure

Every business organization has to make a balance between its income and expenditure. Balancing these two components is not the easiest thing to do in any way. If you are focusing on balancing these two things, the reflection should be there on your balance sheet. Tax departments minutely check tax return files. If you they notice that your organization makes abrupt expenses without balancing its income, tax auditing may be ordered against your business by the tax department. So, if your business is making high expenses despite low earning for a few years, you must be ready to face the tax auditing. You have to keep all the documents ready, showing that your business is legitimately doing all the expenses without showing any intention of tax evading.

7. Too High Expenses with Business Vehicles or Logistics

Logistics is an integral part of many businesses these days, especially the e-commerce businesses which receives order online and take the responsibility of delivering the order right at the doorstep of the buyers. If the expenses that have been done to manage as well as maintain logistics unit are abruptly high, tax auditing could be faced by your business soon or later. With business vehicle and logistics, many businesses tend to show wrong expense data in order to evade high tax return. This is the reason why the tax department is always conscious in this regard. It always tries to possible loopholes that businesses can exploit to evade taxes.

On the bottom line, it can be stated that there is nothing to be afraid if tax auditing has been scheduled against your business by the tax department until you have all your documents ready. But, if you can file your tax return with accuracy, the tiresome auditing stage can be escaped.


Like this Article? Please Share With Your Friends and Family
  • 299
  •  
  •  
  •  
  • 6
  •  
  •  
  •  
  •  
  •  
  •  
    305
    Shares
Tags
Show More

Noman Sarwar

Noman Sarwar is highly experienced in creating engaging content that adds real value to a blog, website or brand. He is creating content for multiple niches like technology, SEO, Marketing, Health, Education and Career Development etc. Let the right words offered to the audience in a great way that has the potential to ensure success as well as to get something that you are looking for.

Related Articles

Close