Posted on April 15, 2005 at 13:36:29:
What is the IRS looking for? Small-business owners should be aware of certain items—the so-called “red flags”—that are more likely to trigger a tax audit.
For instance, some owners of S-corporations skip a salary to avoid paying FICA taxes. Don’t; the IRS is watching. Pay a reasonable salary; check those in unrelated companies. Conversely, owners of C Corporations should not take more than they can justify.
Another hot-button item: are workers employees or independent contractors? The key is the employer’s control of how, when and where they perform their duties. Another: expenses for travel and entertainment. Be ready with adequate documentation.
But don’t be more concerned than necessary. Filing for an extension won’t increase the chance of being audited. But be sure that the return is completed, that all income is reported and costs capitalized where required.