More Audits on the Way for Small Businesses in 2021

The IRS announced it will increase audits of small businesses by 50%. This news is shocking after years of low examination rates, and couldn’t come at more inopportune time since COVID tax law changes, paid leave programs, PPP Loans, and closures etc., have made operating a small entity more difficult.

Starting in February of 2021 auditors will be enforcing the rules on businesses from family owned entities to entrepreneurs with online platforms and even technology startups. They will be targeting pass through entities, hoping to collect underpaid taxes.

Here are some tips to help safeguard your business interests and avoid audit red flags:

1. Accurately and honestly reporting all income, deductions, credits, expenses, etc. Making sure you have adequate documentation to support the figures reported on your business’ information return will make your individual tax return less likely to be have errors or be audited.
2. Avoid unusual itemized deductions and business losses. Reporting losses for three years or more could increase your risk of an examination into whether you’re actually in business.
3. Anticipate owing more than $500 in taxes for your business entity for the year? Don’t fail to make quarterly estimated tax payments. Failing to make these payments raises your risk of an audit and/or penalties.
4. Invest in bookkeeping software to keep your records accurate and secure. It will also help your Fuoco Group CPA prepare and file your tax returns.
5. Know the rules! The complexities of recent tax law may require the help of a Fuoco Group tax expert this year.

Reach Out To Us: In spite of COVID business disruptions, tax enforcement is still proceeding. The pandemic has hit most small business hard, but also exacerbated fraud.  In addition, oppressive compliance for federal aid and changing guidance makes it hard to play by the rules when the rules keep changing. We can assist you with tax compliance, tax planning, and representation before the IRS should you need it. Talk to us about your concerns at 855-542-7537 or CPA@fuoco.com.