What Can Trip You Up in Audit

What Can Trip You Up in Audit

Are you paying enough in taxes? Most small business owners would say they already pay plenty. But the IRS disagrees. The agency calculates the "tax gap"—that is, the difference between what it expects to collect and what taxpayers actually fork over—at more than 15 percent of total taxes due, or between $257 billion and $298 billion, according to the most recent analysis of the 2001 tax year.

Personal income from business activities—rather than wages or investments—is the single greatest source of this discrepancy, according to the IRS, accounting for between $83 billion and $99 billion of missing tax dollars. That's why the agency directs the greatest share of its enforcement budget—41 percent in 2006—toward small businesses, almost as much as it devotes to corporations, high-income individuals, and criminal activity combined.

Since the IRS already sees the bulk of small business owners—those with businesses structured as sole proprietorships, LLCs, partnerships, and S-Corps—as a greater risk of misreported income compared with individuals or large corporations, you need to be careful to avoid cutting any corners that could trip you up during an audit. Consider the following 25 slip-ups.

Business Exchange related topics:
Small Business Accounting
Small Business Tax Deductions
Small Business Operations