IRS audit

5 Common Audit Triggers for Businesses

When the IRS wants to investigate a business’ finances for evidence of what amounts to tax fraud, it can leave a company feeling invaded and overwhelmed. What many companies don’t know is that there are things they can do to reduce the chances of getting audited by the IRS. Our Los Angeles and Rancho Cucamonga tax attorneys explain five common audit triggers businesses can look out for to reduce their chances of getting audited.

Common Tax Audit Triggers

Below we have put together five common tax audit triggers for businesses.

  1. Not Filing or submitting an incomplete filing: When a business doesn’t file their taxes, it is the biggest red flag for the IRS. When a company fails to file their taxes for a few years in a row, they will surely hear from the IRS. Businesses can also trigger an audit if their filing is incomplete.
  2. Reporting losses every year: Another way to trigger an audit is never to show a profit. If your reporting shows that you aren’t making money, the IRS will want to know how you are staying in business.
  3. Rounding Numbers: Perfectly rounded numbers rarely happen in real life, so the IRS views rounded numbers in tax returns as extremely suspicious. When calculating your taxes, it’s vital to use exact numbers and not round.
  4. Large Changes in Income: If your income or even expenses have doubled or tripled in the last year, the IRS will consider it suspicious activity. Although it is likely for businesses to grow exponentially, this can be a red flag for the IRS. Businesses need to keep detailed records of large changes in income in case of an audit.
  5. High entertainment & travel expenses: Expensive dinners and business travels can be another red flag for the IRS. They often take a closer look at expenses that could potentially not be business-related.

Los Angeles Tax Audit Defense Attorney

If you received a letter from the IRS informing you that it will be conducting an audit, you need an experienced tax lawyer on your side. Our team at The Blue Law Group has years of experience helping businesses throughout Los Angeles and Rancho Cucamonga with audit defense cases. Building a defense against an audit as soon as possible can shield you from tax penalties and even criminal accusations.

Contact our Los Angeles audit defense attorneys today at (909) 766-9996 to schedule a virtual consultation!