Getting audited by the IRS is something no restaurant owner wants to go through. Even though audits are relatively rare for most people, it’s important to make sure you do everything you can to ensure that it doesn’t happen to you. Luckily, there are a lot of things you can do to lessen your chances of getting audited.
Below we take a look at some of the most common causes for an IRS audit.
Failing to File on Time
Let’s start off with an easy one: Filing your taxes on time is one of simplest ways to make sure your tax return stays off the IRS radar. Not only will timely filing prevent you from owing more money in fines, it will also lessen the chances of the IRS flagging you for audit. Although tax day creeps up on all of us quicker than we may like, doing this one simple step helps avoid getting that dreaded IRS audit notice in the mail.
Mistakes happen, but unfortunately when it comes to mistakes with your tax returns, they lead to fines and maybe even to an audit. By making sure you work with tax professionals every time you file a tax return, you can rest easier knowing that you haven’t made any mistakes. Although not every mistake leads to an audit, most do lead to some issue with the IRS, so just make sure you don’t make any kind of mistake when you file, intentional or not.
Failing to Report All of Your Income
Failing to report all of your taxable income is one of the surest ways to lead to an audit by the IRS. And, if this was something done intentionally, it may lead to even more problems than we care to get into here. Even though your tax bill may increase as you make more money, don’t ever try to hide it!
One of the most important things a restaurant owner can do to prevent an audit is to report all of the income the restaurant receives, including all tips received by wait-staff. Both employees and employers have tip reporting obligations. There are software point-of-sale programs that can help you with this by automating the tracking and reporting of tips that are made at the time of payment with a credit or debit card.
Making Invalid or Excessive Deductions
Another way to lead the IRS right to your front door is by making invalid or excessive deductions on your tax return. For example, if your restaurant is rapidly expanding, it may be tempting to sneak in a couple of extra deductions with the many valid ones you have in order to lower the amount of taxes that you have to pay. You might think that you’re already deducting so many that it won’t matter if there are a couple of extra ones in there. Think again. It’s the IRS’ job to make sure taxpayers don’t get away with things like this, so just stay honest and pay up – otherwise you’ll be paying a lot more down the line.
Misclassifying Your Workers
Restaurants also often get in trouble with the Internal Revenue Service by misclassifying their workers. A business is required to withhold payroll taxes and issue W-2 forms to employees. It can be tempting to try to avoid this paperwork by instead classifying workers as independent contractors. Since contractors pay their own taxes, they also benefit by receiving a greater percentage of their gross pay than your employees receive. However, the IRS often audits employers it thinks may be misclassifying their workers and large fines are possible. At the state level, you could also end up liable for back wages to a misclassified employee.
As with other improper deductions, it’s the IRS’s job to catch this type of thing – making this another way to raise a red flag once your return has been filed.
A common theme throughout this list is honesty. If you just stay honest on your tax return and take care not to make any mistakes, you’ll find that the IRS won’t take any interest in you – which is exactly what you want. If you have questions about your tax return or if you have received a notice of an audit from the IRS, contact an experienced tax attorney right away.