Business Write offs and Audits: Beat The IRS. Entrepreneur MBA Podcast 3.26
Summary: In today’s podcast guest Charles Read from Get Payroll speaks with Stephen Halasnik from Financing Solutions about business write-offs and IRS business audits, also how to beat the IRS. The IRS is very tough to deal with and today we are going to talk about ways to stay off their radar.
How Did Get Payroll Business Start?
Charles Read (CPA) and his wife started this business 30 years ago when he had had enough of corporate business life. Get Payroll mostly services small businesses and Charles prefers to work with a target market of businesses with 50 employees or less but Get Payroll can service clients of all sizes. Get Payroll provides federal tax and state return services, payroll, direct deposits, checks, and everything that is integral to payroll. Their unique selling proposition is they are tax experts for small businesses. 40% of all small businesses get penalized each year with an average penalty of $800 dollars and Charles is very used to dealing with tax issues and penalties.
How to Not Have Issues With the IRS
The very first thing you need to do is make sure all your numbers are correct on your business write-offs. Arithmetic errors on business write-offs are the biggest source of penalties when it comes to the IRS. You have to make sure all your math and the numbers on the business write-offs add up. If numbers aren’t something you are very strong with you should hire someone who is good with numbers.
The next thing is about making your deposits timely. If you are even two seconds late with your deposits, there is going to be a penalty. It is important that you deposit everything on time even if you have to deposit early. If you deposit early the only issue you might get is with payroll. Also, it is very important to make sure everything is filed on time, there is a penalty if everything isn’t filed on time. If you do get hit with a penalty and you think you are right, you should fight it unless it is a very small penalty then you should just pay the fee.
The third thing is to make sure you read the letter and understand what they’re saying. For example, if they say you didn’t make a deposit, send them proof that you did. If you didn’t make a deposit, make the deposit and apologize. Never ignore a letter from the IRS, you always have to answer. Even if you get the same letter, tell them exactly what you told them before and say you already answered it. The IRS likes to prey on the ignorant so you have to be prepared to know everything they do. It helps more if you know more than they do about what they do.
State vs IRS Business Audits
There are key differences between state and IRS business audits. State business audits are easier to handle than IRS business audits because you can talk to the people that are involved in it at the state. In many cases, the people that you are dealing with in the states are generally less sophisticated than people in the IRS such as Mississippi or Arkansas. In states like New York, people are very hostile towards taxpayers. In-state audits the laws are not as complex, the manuals are not as luxurious, and the people working for the states don’t get as much training.
The IRS Red Flags of a Business
There are many new red flags the IRS will find in businesses. One of the red flags is the employee retention credit is a huge issue because of the money. There is a lot of fraud nowadays because of how much money is involved. There is also a lot of fraud with the PPP. Lastly, tax deferrals that were implemented last year are also going to be a problem. These issues are all recent and are what the IRS will be looking for in the coming years when it comes to business write-offs
The more usual and traditional red flags that are spotted include the lack of filing and paying when you own a business. The IRS will work with you as long as you are not climbing deeper into a hole. For example, if you are not making deposits they will be very hostile towards you and try to shut you down.
Another red flag is when a smaller business runs all their virtual business write-off expenses through their business which is not good at all. You don’t put personal expenses on a corporate card because when they audit you and go through the first 10 items if all they see is business they are going to lose interest. But if they find anything personal, they’ll go through every single item no matter how long it takes them. You should try to make everything a business expense, you should be straight up to the IRS on all expenses.
Statistics of Getting Audited
The stats of getting audited is a fraction of a percent and the chances are even smaller if it is a smaller business. Major corporations such as JCPenney had two IRS agents at their headquarters at all times and are audited all the time. Even though the chances of a small business getting audited are very low, if they do get audited one year the IRS will come back every year.
Important Steps With the PPP
If the loan has not been forgiven yet then you need to get your paperwork in order to get it done. With that documentation, there will be some type of fraud and it will be audited. For example, with employee retention credit, you have to have your paperwork in order because of the qualifications needed. There are going to be a lot of IRS business audits because of how much money is involved with an employee retention credit. If there is fraud they’ll keep going back to your paperwork.
Paperwork should be kept forever, it should be boxed, sealed, and stored somewhere safe in case the IRS comes around in the near future to search for fraud in the past. This paperwork is way too important to get rid of and should be kept forever. You never know how many IRS business audits there will be.
About the Guest Charles Read from Get Payroll
Charles J Read is a Certified Public Accountant (CPA), U.S Tax Court Practitioner ( USTCP), member of Internal Revenue Service Advisory Council (IRSAC), and the Founder of GetPayroll.
Mr. Read’s companies have provided full-service payroll services, payroll tax services, and other payroll-related services since 1991.
Charles is an accomplished senior executive and entrepreneur with more than fifty years of financial leadership experience in a broad range of industries and the author of four books with the most recent one being, The Payroll Book: A Guide for Small Businesses and Startups
About Financing Solutions Small Business Line of Credit
Financing Solutions small business financing product is a great alternative to a traditional bank line of credit because it costs nothing to set up, nothing until used, and when used, is inexpensive. The credit line requires no collateral and no personal guarantees.
Please feel free to fill out the no-obligation, 2-minute business line of credit application here. The time to set up a credit line is when you don’t need it so that it is ready to be used, just in case.
Note: Financing Solutions donates 10% of its profits to various nonprofit charities