We have all read the headlines; “IRS receives $80B to hire 87,000 new agents over the next decade”. Does this mean increased audits? Probably, who knows for certain but time will tell.
Our role is to help keep you in compliance. Tax avoidance and tax evasive are radically different. Tax avoidance helps lowers your tax bill by PROPERLY structuring transactions so you reap the benefits within the guidelines of the law. There are times you will feel like the poodle jumping through the ring of fire, but we need to properly navigate the tax landscape to ensure we are entitled to the deductions to lower your tax bill. Tax Evasion on the other hand is illegal and is an attempt to reduce your tax bill through underreporting, concealment, deceit or subterfuge. Tax evasion gets you 3 meals and a cot.
Records to Keep to Allow Deductions in An Audit
1. Corporate or LLC Documents
You went through the expense of creating a legal entity, but are you properly maintaining it?
a. Annual Meetings – Are you having annual meetings in your corporation or LLC and documenting those in writing?
b. If you are an LLC, has your attorney updated the documents for the 2015 tax law changes, requiring that a tax matter representative be appointed?
c. Are you acting properly based on your classification for IRS?
- i. If you elected to be taxed as a partnership, make certain the partners are not taking salaries. Partners in a partnership take guaranteed payments or draws.
- ii. If you elected S Corporation status, be certain to abide by the payroll and benefit rules for the 2% or greater shareholders.
d. Are you buying assets properly? If you are a legal entity, then your vehicles and equipment are to be purchased in the name of the entity and insured through the entity. If you are a corporation and are paying your personally owed car payments through the corporation, the IRS may view this as a theft of company assets. Your corporation is no different than Disney or AT&T. Just because you are a stockholder of either of those entities, doesn’t mean they will pay your car payment.
We as preparers are responsible for the information on the return and have very large penalties for failing to comply with the law. We know our advice is not always what you want to hear, but sometimes it is what you need to hear to keep you safe in an audit and keep more of your money in your pocket.
Thanks for allowing us to help guide you through the complicated rules of owning a business. Contact us today to schedule a meeting with our tax experts.