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Business Check-up with Predovich & Company

Posted by Predovich & Company

You need to be ready if the IRS audits your Corporation, LLC, or Partnership. As with any person carrying on a trade or business, you must conduct your activity in a business-like manner in order to receive proper treatment of business income and business expense deductions under the Internal Revenue Code.

To determine whether or not you are truly operating a business for purposes of allowing business deductions, the IRS will look to your records and bookkeeping practices, as well as whether you prepared a business plan, budgets, and breakeven projections when you started your business. They will then examine how you’ve used these tools to adjust your business practices in pursuit of profitability. To be allowed business deductions, you must demonstrate that you are actively engaged in a trade or business, and that your intent is to earn a profit from your business activity.

You must maintain complete and accurate records for your business entity. Your receipts and other records must support all entries on your business entity’s income tax return. You must be able to distinguish, with exactness, business income and expenses from personal income and expenses.

Any business may be audited at any time. Some questions you should consider if you own a business are:

  • Do you want to improve your profitability?
  • Is the entity’s registration with the Secretary of State up to date?
  • Do you have a detailed business plan showing the business reasons for the entity’s existence? Your business plan would include a budget and breakeven projections which show the entity profitable in a reasonable length of time.
  • Is the business plan updated each year?
  • Are minutes complete and up to date?
  • For LLCs and partnerships, is the “Operating Agreement” complete?
  • Is your accounting and bookkeeping in order?
  • Have you assessed your business tax situation and are you in compliance with IRS regulations?
The above list is not intended to be a complete list of areas where your business may be at risk for audit. Please contact us for an appointment if you would like personalized assistance keeping your business to regulation. We also offer Tax Planning services to our clients covering these and many other topics.

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