The Extra Income Inquisition
If you’re a small business, the IRS has decided you may be hiding income. According to the IRS tax gap study released in 2012, the U.S. Treasury loses $376 billion each year due to inaccurate tax returns that underreport income and overstate deductions and credits. IRS data indicates that the taxpayers most likely to underreport income include small businesses and the IRS receives little information to verify the income. So in the cynical eye of a bureaucratic agency, all small businesses must be guilty.
One area of particular focus is the IRS use of Form 1009-K. That’s the form your merchant account provider reports to you and the IRS regarding all credit card transactions. It shows both the annual amount processed and the monthly figures. The IRS compares this to the amount of revenue you report to see if the figures tie out.
But outside the information on this form, the IRS has little other electronic data to check your figures. As a result, the number of face-to-face meeting requests is on the rise (the IRS calls them Field Audits). And if the income turns out to be understated, both you and your tax preparer could be hit with penalties.
So in the quest for reducing taxes, make sure that all income is reported. Focus your efforts on tracking expenses and make sure you take advantage of every deduction. Bu don’t think twice about making sure all revenue is included.
By: Evan A. Nielsen (Licensed in California)
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