IRS Audit of Your Business
The economy is bleak, tax revenues are down, the deficit is expanding faster than Joey Chestnut's stomach after downing 68 Nathan's hotdogs. So what's the government to do? The answer is simple, unleash the IRS on preselected businesses, and have them audit four(4) areas ripe for generation of additional taxes, penalties and interest. These four areas are; (i) employee v. independent contractor a/k/a how do you classify your workers?; (ii) expense reimbursement ; (iii) fringe benefits; and (iv) owner/officer compensation.
Why does IRS select these four areas? The answer is simple, if you do not properly classify a worker as an employee, then you're not paying your fair share of taxes. This misclassification can result in assessment of taxes, penalties and interest equal to fifty percent or more of compensation paid to the misclassified employees. It may also result in the complete revocation of employer sponsorsed retirement plan(s), thus more taxes, penalties and interest. Also, since an employer can only pay fringe benfits to an employee, benefits paid to a misclassified worker would not be deductible and like "Proud Mary" the taxes, penalties and interest keeps on rolling!!!
Regarding reimbursed expenses and officer/owner compensation, IRS also looks for items such as a written reimbursement plan. If you do not have a plan get one!!! or the reimbursed expenses will most likely be denied.. The result is more taxes, penalties and interest. As far as compensation is concerned , this is a discretionay call on the auditor's part. The balancing act rests on whether or not the entity is a "C" or "S" corporation for tax reporting purposes.
YOU need to get your records ready for an audit.. If we can assist you in reviewing any of the issues discussed herein, please call us at 954-981-6533.← Back to All News