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Why do companies get audited
No company ever like the prospect of being audited by the IRS. In fact, just the word of one’s business getting audited is enough to put the love of God back into most business owners. So why do companies get audited? We investigate.
It exposes hidden income
The single biggest reason why the IRS audits a company is because it suspects that the firm isn’t being too honest about its income and thus paying less tax than it should. The IRS is quite serious when it comes to such claims and even the slightest suspicion of tax evasion can trigger an audit.
It reveals when employees/owners have filed personal spending as business expenses
The logic behind this is quite simple- you cannot bill the company for non-business trips. For example, if the WAGS of a company’s board of directors take a trip to Milan for the fashion weeks, it cannot be billed to the company as a business expense and written off. If the IRS suspects that your company is indulging in this kind of inaccurate accounting, your company may get audited.
It exposes fake entertainment claims
A lot of companies try to get their expense on entertainment of in-house personnel (Christmas and New Years’ Eve parties, etc.) covered within entertainment of clients. Legitimate client entertainment expenses can be deducted at 50 percent of the actual cost of the activity though the IRS doesn’t find it too amusing when you try to convince them that the pool party a company threw for its director’s birthday was actually an entertainment expense.
It reveals fraudulent vehicle claims
Using a personal vehicle for business needs can land you in a lot of trouble with the taxman. To avoid this, companies must maintain a very accurate record of the reasons for using a personal vehicle for business needs, information about the clients or potential clients and the kind of mileage that the vehicles drew when used for business.