If your business is being audited, the IRS is going to visit your office. The auditor will be looking for anything strange, out of place or inconsistent with what is reported on your tax return. These are known as "red flags." Example of red flags include:
- the owner's luxury car or boat is parked at the office
- inventory in the warehouse that does not reconcile with what is on the tax returnsworkers in the office, warehouse or factory who should have been classified as employees, with payroll taxes withheld and paid to the government
- missing furniture, computers, equipment and machinery that were deducted on the tax return
- business activity that is out of proportion to what was reported on the returns
If you operate your business out of a home office, expect the IRS auditor to visit your house or apartment. The auditor will verify the physical dimensions of your office, to make sure they agree with what you reported on your tax return. And the auditor will have eyes wide open for evidence that the office meets the IRS requirements for a deductible home office. There requirements include:
- The office is used exclusively and regularly for business purposes (it cannot be at your kitchen or dining room table)
- The office is used as a principal place of business, for managerial or administrative work, to meet with clients or customers, or to store inventory or samples
Let's conclude with a word to the wise: treat your office like you are always under audit. Always be prepared for a visitor from IRS.
If you have any questions about IRS audits, installment agreements, offers in compromise, catching up on back taxes, QuickBooks, or other tax and accounting issues, feel free to contact us at 678-235-5460.
You may also contact us by email at gary.massey@masseyandcompanyCPA.com, or on our website.
Our offices are in the Buckhead neighborhood of Atlanta and we welcome face to face visits.
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3 Alliance Center, 3550 Lenox Road NE, Suite 2100, Atlanta, GA 30326