Businesses should make every effort to protect their money from the IRS. Business owners are required to track and account for every dollar earned and spent on necessary expenses. While having a cash business can be beneficial, there are some things to consider when filing taxes. 

For businesses, cash transactions can save a considerable amount of money. By only accepting cash, one can avoid having to pay per transaction, and avoid things like fraud. While operating in cash does guarantee quick and easy payments, cash-only businesses have a 55% probability of being audited by the IRS, while multi-payment businesses only have a 5% probability of being audited. 

Accepting cash may seem like a better solution to save money, but some businesses have trouble tracking and reporting cash payments, and this is where many businesses get in trouble with the IRS. Between 2008 and 2010 $485 billion was not reported to the IRS. This is known as the “Tax Gap.” 

This is not an article detailing how to hide money from the IRS, but a guide to avoid audits and protect your business.

Log All Appointments 

From the perspective of the IRS, money earned but not accounted for raises questions, meaning you want to be as detailed as possible. Log every appointment every day. It’s easier to show data supporting how many clients you had each day, versus just jotting down how much you made in a day without a detailed breakdown.

Keep Records of Every Transaction

Track every dollar made and spent on business expenses. Bookkeeping can be tedious, but there is bookkeeping software to make it easier or you can just hire an accountant. When doing your own bookkeeping, make sure to include the date and any other small, but relevant details. 

Keep And Categorize Receipts

This speaks to logging all business transactions. Certain expenses are tax-deductible, but it will require the right documentation. Even if you don't plan to deduct any expenses, the IRS will require these documents. 

Control Your Personal Finances

We all like nice things, but nice things typically come with a higher price tag. Large purchases are always reported to the IRS, and if your reported earnings don't align with high priced purchases, it appears suspicious. Buying luxury calls, multiple homes, and other extravagant items may raise some questions. If you can help it, keep a low profile. 

Don’t Get Funny With The Money

If you think you’ve found a loophole, double-check with a trusted CPA. It’s better to claim all of your earnings and write off taxable deductions at the end of the year than to accidentally run into trouble. The potential fines are no joke. 

In conclusion, don’t mess with the IRS. If you get audited, hire a professional accountant immediately. Remember, when examining earnings, tax officials look at more than just the business. Total life finances are on review – cars, homes, rent, gifts, etc. They have access to it all and will audit accordingly. Treat every purchase like you’re going to be audited. In the meantime, contact MATS for more trusted tax advice.

Join our Facebook group!