IRS Expected to Audit More Small Businesses in 2021

After years of low examination rates, the IRS announced it will increase audits of small businesses: by 50 percent. This news comes during a time when complex tax law changes and economic stimulus programs in response to COVID-19 have made businesses’ books even more complicated than usual.

The IRS plans to hire more specialized auditors by February 2021.

Here are some tips in the event of an audit:

  1. Keep clear records: Report all income, deductions, credits, expenses, and other figures. Make sure you have adequate documentation to support the figures reported.
  2. Mind your deductions: Unusual deductions raise red flags for auditors.  Also, reporting losses for three years or more could increase your risk of an examination into whether you’re actually in business.
  3. Make your estimated tax payments: If you anticipate owing more than $500 in taxes for your business entity throughout the year, you should be making quarterly estimated tax payments.
Posted in IRS, Taxes, Tips