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New Jersey is a state where small businesses can thrive. However, New Jersey small businesses must also be ready for a common threat – an IRS audit.

Small business owners need to be able to effectively respond to IRS audits. They also need to be able to challenge audit results through appeals or litigation. New Jersey IRS small business audit lawyer Kevin E. Thorn can help business owners to handle the inevitable tax audit.

Triggers for IRS Small Business Audits

Small business owners should be aware there are certain business activities that often result in audits. An IRS audit can result in an increased tax assessment, interest, and potentially even tax penalties. Some IRS audit “triggers” for small businesses include the following:

Large Amounts of Cash Transactions

Some businesses have large amounts of cash transactions, and the IRS is on the lookout for businesses that fail to report cash income.

High Deductions for Meals, Entertainment & Travel

Deductions for meals, entertainment and travel can be completely legitimate business deductions. However, these types of deductions are also ripe for abuse, and the IRS knows it. If an IRS audit challenges these deductions, the taxpayer’s record keeping will need to be in order.

Deductions for Business Use Vehicles

A taxpayer can only deduct all of their auto expenses if the vehicle is used for business purposes 100% of the time. Most business owners use their vehicles for both business and pleasure. These owners will only be able to claim a percentage of their auto expenses as business deductions. If the business owner claims a high percentage of business use for their vehicle, an IRS audit is more likely.

Payroll Tax Reporting & Payment

Like other businesses, small businesses are required to report and pay payroll tax on compensation for their employees. Failure to do so is a huge red flag for IRS auditors.

High Home Office Deductions

Home office deductions are legitimate if the home office is used for business purposes “exclusively and regularly.” The home office must be a designated workspace in the taxpayer’s home.

Paying Employees as Independent Contractors

There are tax savings for both workers and companies when the workers are designated as independent contractors instead of employees. For this reason, any business hiring independent contractors is at higher risk for an audit.

Responding to IRS Small Business Audits – You Need a New Jersey IRS Small Business Audit Lawyer

When a New Jersey small business receives notice of an IRS audit, it must be prepared to handle the audit effectively. In the best-case scenario, the audit can result in no change to a taxpayer’s reporting, or even a tax refund. However, the audit can also result in additional taxes, along with interest and penalties. A New Jersey tax attorney with experience in small business audits can help resolve the audit as beneficially as possible for the taxpayer.

Speak With a New Jersey IRS Small Business Audit Lawyer at Thorn Law Group

If you are a New Jersey small business owner who has been notified of an IRS audit, speak with an IRS small business audit attorney at the Thorn Law Group immediately. Contact Kevin E. Thorn, Managing Partner, at 201-355-8202 to schedule a consultation, or email him directly at ket@thornlawgroup.com.