Few events can be as stressful, expensive, and time-consuming as a tax audit.
Knowing in advance what can trigger a small-business audit and what auditors are likely to look for can help you conduct your business in a manner that minimizes your risk. What exactly triggers a tax audit can be difficult to pinpoint and varies depending on the industry. For officers of family-held companies, IRS officers look to see if a salary is unreasonably large. If the IRS decides it is, the company s expense deduction may be disallowed and the salary could be treated as a nondeductible dividend distribution. To protect yourself, keep excellent records of the officer s hours worked, education, and unique talents provided to the business.