Just about every small business owner should be.
Few events are as stressful, expensive, and time-consuming as a tax audit.
According to the Pennsylvania Institute of CPAs, 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 audit risk. The exact triggers for an audit are difficult to pinpoint and vary from industry to industry and from year to year. For example, in the beauty salon and barber shop industry, where a fair amount of cash changes hands, the focus may be on unreported cash, while in the computer and technology industries, auditors are more likely to be looking for businesses that abuse the tax credit for research and experimentation. Here are several scenarios that may very well capture the attention of the Internal Revenue Service. If the IRS decides that an officer's salary is unreasonably large, it may disallow the company's expense deduction for the excess and treat it as a nondeductible dividend distribution.