Though the tax season is over, it doesn’t mean that you’ll also stop thinking about your taxes. In fact, small business owners, especially sole proprietors, are particularly at risk of being audited by the Internal Revenue Service (IRS). This is because the IRS believes self-employment incomes are grossly under reported, according to experts. That's why, even though the tax season is over, now is still a great time to make sure your tax planning strategy is solid and know how to avoid an audit.

It is recommended to consider using a payroll software or even a tax professional to complete your tax return. This accounting software small business can keep track of salary, wages, and related taxes. Also, this software can also help you to avoid red flags for audits.

Separate your business expenses from personal expenses. Make use of a separate credit card for your business expenses. In this way you are ensuring to keep those expenses separate from your personal activity. The IRS is often very vigilant in looking out for personal expenses being reported as a business expense, so this will help ensure that you comply.

Avoid miscellaneous categories of expenses. If your business takes an unusual amount or kind of deduction, make sure to practice transparency about the deduction by documenting and explaining why your business is taking the deduction in your tax return. You can ask your accountant if you need a special form to claim the deduction.

You must always report your full income. You need to report the gross income which is the amount before the fee was taken out, and not the net revenues. If you report the opposite, then you are under reporting your revenues, which could be easily seen and be penalized. In cases when you receive a customer payment via PayPal, though that payment will already have the PayPal fees taken out, you can report the fee as an expense, which can reduce your taxable income.

Make sure to meet the tax deadlines. Being late can raise red flags with the IRS as you will appear unorganized.


You may also Like Us on Facebook, Follow us on Twitter and Follow us on Google+ for more Updates.