Individuals in the U.S. are afforded with many opportunities and freedoms, including those that relate to commerce. According to the U.S. Small Business Administration, there are roughly 23 million small businesses in the U.S. and small businesses account for roughly 54 percent of annual U.S. sales.
While U.S. small business owners are definitely provided with opportunities to start and grow a business, they are also subject to many federal and state rules, laws and regulations including those imposed by the Internal Revenue Service.
When it comes to the IRS, small business owners may be singled out for closer review or an audit. If this occurs, a business owner would be wise to remain calm and attempt to cooperate with the IRS auditor. In cases where a business owner fears he or she may be in violation of the tax code or that an audit may result in the discovery of evidence that could lead to criminal charges, it's important to contact a criminal defense attorney as soon as possible.
When dealing with an IRS audit, it's wise not to leave anything to chance. If an individual is questioning whether or not an audit will reveal questionable financial dealings or actual tax crimes, the answer is most likely yes, and it's time to call an attorney.
The following are examples of things an IRS auditor will review that could potentially raise red flags and result in a business owner incurring IRS fines and penalties, and even facing criminal charges.
1) Cash transactions: If your business is primarily cash-based, be prepared to show detailed financial records to account for earned income and paid taxes.
2) Payroll taxes: Do you hire employees or contractors to complete work and are your contractors really employees? These are questions an auditor will ask and a business owner should be prepared to answer.
3) Business-related deductions and expenses: Are you writing off a significant dollar amount of business-related expenses? Are you able to produce detailed records of these expenses?
4) Lifestyle considerations: In cases where a business is operating in the red on paper and a business owner lives in an expensive home or drives an expensive car, he or she should be prepared to answer questions about such discrepancies.
If you feel you may need to speak with a tax attorney:
