The Internal Revenue Service or the IRS is a government agency that is mainly tasked to get taxes from all working people. This includes businesses, of course.
Although the IRS has a random audit process, there are certain circumstances that will make an audit more likely. If you are a business owner who either pays their taxes late or perhaps if you are found out that you are not paying your taxes accurately, then those things can trigger the IRS to do an audit of your business.
Filing and paying your taxes is very important as a business owner and to help you calculate for your company’s tax obligation, you need to be hiring tax accounting services in Malaysia to help you with that.
In today’s article, I will talk about some triggers that will most likely make the IRS audit your business.
High Income or Assets
If your business has a higher income than others, then that would signal the IRS to conduct a business audit more frequently than small businesses.
This is done under the assumption that the higher the revenue a company makes, the higher the tax that is collected.
The IRS Data Book will show a bevy of numbers that will correspond to how frequently the agency will conduct an audit.
For instance, if a business will state their annual income is only $250,000 and below, then that would mean an audit process that is within the 0.8-1% range.
However, if the business reports that they are earning anywhere between $5-$10 million, then the audit rate is much higher compared to the first one.
Of course, if you are well above the billion-dollar mark, then expect the agency to conduct more frequent audits to your company.
The agency typically uses a computerized process that will match all of the tax forms to your business with its corresponding tax return.
If an entry on one of the forms gets omitted or if the numbers don’t exactly match, your tax return will be one of the tax returns that are up for human review.
If the entry of the newly filed tax returns are intentionally written in a different way (perhaps indicating that there is a change in your company’s income), along with the corresponding data to support that claim, then that will typically be enough to satisfy the reviewer without the need of a formal audit.
The IRS is particular with all of the details that are put inside their forms, which is why if they notice that your business tends to lose a lot of money, then that would signal to them that they will need to conduct an audit.
This actually makes perfect sense since business owners are set to make a profit, right? Perhaps, your repeated losses could be due to the fact that there are entries in your tax forms that shouldn’t be there.
Just to make sure that you are safe in times of an audit, you should keep your financial records for at least three years.