The IRS pays close attention to how businesses file their taxes each year. Its scrutiny of companies' tax returns ensures that businesses pay what they rightfully owe to the federal government. You can pay your obligatory business taxes and avoid unneeded attention from the IRS by learning more about the five primary triggers that could lead to a corporate audit.

Payroll Errors

Your business's payroll could lead to an audit if it is riddled with mistakes or if you forgot to include important information required by the IRS. When you file your taxes, you must ensure that your payroll includes deductions for:

• Federal tax
• FICA
• Social Security
• Medicare

If you fail to withhold these important employee deductions or if you do not pay them to the government on a quarterly basis, you may be audited by the IRS.

Likewise, the IRS will examine your payroll for suspicious activity like excessive loans to your company's corporate officers. Exorbitant or frequent loans to these individuals could signal that you are trying to avoid payroll taxes. It could also lead to an IRS audit.

Excessive Deductions

As a business owner, you are entitled to deduct certain business expenses on your taxes. However, to avoid an audit these deductions must be reasonable and also must reflect the amount of money and business that your company does on a regular basis.

The IRS may decide to conduct a corporate audit on your business if it notices suspicious or unreasonable deductions for:

• Meals
• Travel expenses
• Car repair or maintenance costs
• Entertainment
• Charitable donations
• Salaries and bonuses
• Health insurance
• Fringe benefits

If you spend more money than usual on running your business during a particular year, you can defend yourself in an audit by maintaining records of your costs and also by keeping the receipts of the money you have spent on these legitimate corporate expenses.

Suspected Personal Expenses

Some business owners make the grave mistake of trying to deduct their personal expenses on their businesses' taxes. The IRS may audit you if it is believes that you are trying to claim these personal costs on your corporate tax returns:

• Vehicle lease or loan payments
• Cell phone bills
• Personal travel
• Entertainment
• Meals

Even if you spend the money that you make from your business on these personal costs, you cannot claim them on your corporate tax returns. You will commit fraud if you claim them on your taxes and also set yourself up for a corporate audit.

Mathematical Errors

Simple mathematical mistakes in your tax returns could trigger the IRS to audit your company. These errors could result from poor bookkeeping or rounding up figures instead of recording the actual numbers in your return. Mathematical mistakes could cause your current year's returns to look drastically different from those submitted last year or the year prior, garnering the attention of the IRS.

To avoid this scenario, it is important that you review your business's returns for such mistakes. You should hire a tax professional to help you file your taxes if you lack the time to prepare your own corporate returns or if you are not confident in your ability to compute the numbers accurately.

 

Missing or Late Submitted Tax Forms

The IRS expects businesses to file and pay their taxes quarterly. The corporate forms you may be expected to be complete and submitte include:

• Form 1120 U.S. Corporation Income Tax Return
• Form 940 Employment Tax Return
• Form 941 Quarterly Tax Return
• Form 1120-W Estimated Tax for Corporations

If you submit the wrong form, fail to submit the required forms, or file and pay your taxes later than the stipulated deadline each quarter, you may inadvertently invite the IRS to audit your business.

The IRS pays close attention to the tax returns of U.S. businesses. You can avoid unneeded scrutiny of your returns and possibly having to pay more taxes, fines, or penalties by knowing what top five triggers could lead to an IRS corporate audit.