April 2016

THE VALLEY BUSINESS JOURNAL
12 www.TheValleyBusinessJournal.com
April 2016
Small Business Taxes: Tips for 2015 and 2016
Audit Red Flags -
What Raises Eyebrows at the IRS?
Provided by Nicole Albrecht, EA
Are you worried about being audited?
The fear may be overblown as
only 0.86% of taxpayers had their federal
returns examined in 2014. Last year,
7.5% of millionaires had their returns
scrutinized. Much of this is down to low
staffing at the IRS. In 2011, during more
prosperous times for the agency, the IRS
audited 1.11% of returns. Still, no one
likes extra stress courtesy of the IRS.
Let’s look at some red flags that might
get you extra IRS scrutiny. 1
A Schedule C that hints at some
odd bookkeeping. Schedule Cs get a
close look annually as the IRS seeks to
remedy the tax gap (the difference between
federal taxes owed and federal taxes
paid). As Schedule Cs are often filled
out by solopreneurs and small business
owners themselves, the chances increase
for claiming substantial deductions that
may be hard to substantiate. 2
Taxable income of $1 million or
more. Millionaires work with accountants
for a reason – generally speaking,
returns prepared by tax professionals
raise far fewer red flags than DIY ones.
If you will make around $1 million this
year, look back at the first paragraph of
this article and consider whether or not it
might be wise to defer some potentially
taxable income into 2014 .2
Bad math. The IRS does spot mediocre
mathematics in returns. However,
it also finds unreported and underreported
taxable income through the same scrutiny.
The IRS says taxpayers and preparers
made 2.3 million math mistakes on their
2013 federal returns. Not only are these
general errors, but also errors in the calculation
of income, as well as missing
information. 3
Huge deductions. Is your money-losing
small business venture truthfully
just a hobby? Did you really donate
$6,000 worth of office supplies to a charity,
and do you have the receipts to back
that up? The IRS routinely checks returns
for deductions that seem outlandish. 2
Living large. Does the IRS peruse
social media? Yes it does, as we all do.
The IRS has done good detective work
for years; its investigators know to check
out DMV and employment records to
get a better picture of an errant taxpayer.
Today, photos and posts on Facebook
and Twitter can telegraph potentially
valuable nuggets of information, particularly
about young taxpayers who have
come into wealth that their returns don’t
seem to show.
Keep it simple. File early and accurately.
Keep your receipts and other
pertinent papers on file. Spend a little
time each month arranging your financial
matters so that taxes can remain a
relatively painless process.
Nicole Albrecht may be reached at 951-
719-1515 or nicole@taxmanfred.com
Citations.
1 - time.com/3721148/irs-tax-returns-audits/ [2/24/15]
2 - kiplinger.com/slideshow/taxes/T056-S011-irs-audit-red-flags/index.html
[3/15]
3 - bankrate.com/financing/taxes/irs-catches-millionsof-math-mistakes/
[3/31/15]
by
Keith Larson
A search of the internet for last
minute tax tips and planning for 2016
yielded the following. The first 2 come
from Business News Daily by Adam C.
Uzialko.
Small businesses have been crying
out for consistency in the tax code, and
for 2015 they got some. However, the
2016 elections could change that. Business
News Daily consulted small business
tax experts to find out what things
business owners should pay attention to.
1. Tax extenders - Two important
tax breaks for small business have been
extended: Section 179 and bonus depreciation.
Section 179 allows businesses
to deduct the full price of any qualifying
equipment or software purchased or
leased during the year. The tax-extension
bill makes permanent the $500,000
maximum deduction for new and used
equipment that was purchased or leased
in 2015. Bonus depreciation, which was
extended through 2017, allows business
owners to depreciate 50 percent of the
cost of new equipment purchased in
2015. The two tax incentives can be used
together.
Other notable tax extenders include the
research and development credit, work
opportunity tax credit, energy production
tax credits, and a deduction for local and
state sales tax.
2. The Affordable Care Act - The
main issue for many businesses is that
they could face tax penalties for failing
to provide health insurance to employees
or for failing to report to the Internal
Revenue Service what type of coverage
they have provided.
Since the start of 2016, businesses with
51 to 99 employees are required to offer
health insurance to at least 70 percent of
their full-time-equivalent employees or
face a tax penalty of $2,000 per employee.
They must report, on each employee’s
W-2 form, the cost of the health coverage
provided. A breakdown of what the
employer and the employee each paid is
also required. The IRS recently extended
the reporting deadline to May 31, 2016,
for paper filings and June 30, 2016, for
electronic filings. For more tips, see Janemarie
Mulvey’s book “Health Reform:
What Small Businesses Need to Know
Now!” at Amazon.com.
3. Business identity theft - Business
fraudsters have realized they can generate
larger refunds when they steal a
business’s identity and claim business
deductions and credits. It is estimated that
over the next five years, the IRS could
issue nearly $11.4 billion fraudulent
tax refunds based on falsely-obtained
Employer Identification Numbers (EIN).
• For the cost of a $10 filing or processing
fee, thieves may file a fraudulent
change of your business address, or
file changes to your business’ officers,
directors or registered agent.
• Thieves may identify a target business
in one state, and fraudulently
register that business as a foreign (out
of state) business in another state.
• Making a slight change to an established
company name to be
confusingly similar to the legitimate
company’s name in order to deceive
creditors, financial institutions, and
other businesses. For example Anderson
Petroleum, LLC vs. Anderson
Petroleum, Inc. For tips on how to
protect your business go to http://
www.businessidtheft.org/
Join Keith and other business owners at
a FREE monthly Business Roundtable,
held 3rd Wednesdays from 8:00 to 9:00
a.m. at the Murrieta Innovation Center,
26442 Beckman Court in Murrieta.