One of the advantages that an individual employee has over a small business proprietor is that the latter is more likely to get audited by the Internal Revenue Service. The IRS devotes almost half of its enforcement budget toward small businesses, but it is not out of malice.
It’s simply because small business owners are more likely to understate their income and/or overstate their write-offs. If you run a small business and you don’t want to get on the IRS’ bad side, there are a few things you need to avoid.
Failure to Pay Payroll TaxesMany business owners tend to deprioritize payroll taxes, which include half of Social Security and Medicare taxes, if they have problems with cash flow.
Some business owners try to get out of paying payroll taxes by reporting workers as independent contractors even when they are not. This is very, very dangerous and they are likely to be caught sooner or later.
Many small businesses tend to pay its workers in cash, but this makes them more likely to get audited because they don’t have proper documentation to support the declaration of their costs.
If you own a business and you’ve made one or all of the above mistakes, there is no need to panic. If you are not purposely evading taxes, then there is a way to prove to the IRS that you’re paying your dues. All you need to do is consult a Sacramento tax attorney, who will be able to tell you what your options are, and will also be able to help you settle matters with IRS before it even gets to court.