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Eve Tahmincioglu

Primary author Eve Tahmincioglu has been covering small business and entrepreneurship for more than a decade. She regularly writes about small business issues for the New York Times and BusinessWeek's SmallBiz magazine. She also writes the Your Career column for MSNBC.com. She is the author of "From the Sandbox to the Corner Office."



IRS deploying cyber-sleuths

Posted: Tuesday, April 01, 2008 3:03 AM by Eve Tahmincioglu
Filed Under: , , ,

Beware all you cheating small business tax filers out there.

The IRS has ramped up its technological capabilities and is using it’s gigantic data base to sniff out businesses and individuals trying to pull a fast one on the federal government.

There’s a great story in InfoWorld last week that talks about how the IRS is using its giant data warehouse and is “able to discover areas where tax cheating had become rampant, such as the Earned Income Tax Credit, or small-business tax shelters.”

This at a time when IRS audits of small firms that make under $10 million annually is on the rise, up to 20,020 in 2007 from 17,871 the previous year.

So what’s an entrepreneur to do?

First off, don’t cheat. That’s pretty easy.

For those of you who are playing by the rules but still afraid of being audited because your record keeping consists of receipts shoved in the linty corner of your briefcase there may be help.

Here’s some advice, from Steve Buschel, tax partner for accounting firm BDO Seidman, that may help you duck a possible IRS audit. Emphasis on the word “may”.

Please don’t come back to me all ticked off that you got audited anyway. You can e-mail BDO Seidman and yell at them. (Only kidding.)

OK, the tips already:

1. Are you a sole proprietor? If so, the IRS may be scrutinizing your return extra carefully. The Treasury Department even suggested that the IRS be able to compare credit card records to Schedule C filers’ tax returns. The message – the IRS is paying attention.  Be sure income from all sources is being reported.  In addition, your self-employed business reports a loss, it may be subject to the hobby loss rules unless you can establish that your primary purpose for engaging in the activity is to make a profit.  Maintaining adequate records may be critical in proving this.

2. Pay special attention to business expense write-offs. The IRS is increasing the number of its probes regarding deductions; so be careful and save those receipts.

3. If you are part of a partnership pay special attention to your K-1 when filing. The IRS continues to enhance its K1 matching process so that it is now fully computerized. Be sure to pick up every item on your K1 – because if you don’t the IRS will!

4. Pay attention to the AMT.  If your business is subject to the AMT, there are specific forms you will need to include. If you want to determine if the AMT applies to you, talk to your tax professional. NOTE: Items on the business tax return of a pass-through entity (S Corps and/or partnerships) may create AMT liability on the personal tax return of the business owner, so keep this in mind as you prepare to file your 2007 business/personal income tax returns.

5. Do you own an S Corporation business? Because S corporations are not subject to federal income tax (other than tax on certain built-in gains and, possibly, passive income) owners need to be diligent in reporting their complete compensation packages.

And no fudging people! Big Tax Brother is watching.

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Comments

Not that I am saying this is a good thing, but it is about time the paying field is being leveled. I suppose it is a matter of who is directly effected as to how they see it work. However, I do think that if they were to offer an amesty for info program, the IRS would see a flood of info directing them to thousands of other prosecutions that would definately net some serious proper return fed capital. In working to the most ethical and positive standards, we see it everyday, where some con, someone thinking they will beat the system or simply worse, have no real ethic and/or moral reality to doing what they are meant to do just as their competitions or the average working guy does in paying their due taxes. There is no doubt, it is a definate real hardship however, it is one of the few obsticles to owning and operating a business and is simply that part of the game " the cost of doing business"...the reality here, is that allot of unknowing, wreckless operators will get the snag in the great brother IRS net and bottom line is, just do the right thing. I know personally that despiration will make you think of ways out, however, paying the dues is better than chancing your way in, to being bubba brothers next wife...and losing it all anyway...

Sam Mixx Cincinnati, OH (Sent Friday, April 25, 2008 9:30 PM)

Hey screw you Sam, it's war out here...them and us...the reality here is that you simply are too stupid to recognise that this is a new wave of a new system about to unfold in the american pie business. Your whinning about ethic and such is splather and doing the right thing in my world is learning how to take those opportunities and chancelory I so select..I love my internet business and can gloat over all the taxes I've not had to pay and oh, btw, all your domains I and miller stole from you fool...Yes, I now have the money and living transplanted from Cincinnati to beutiful S.California and yes, thanks to the spector of my infamous diving buddy, we are rockin...You are the bone head for your thoughts on this and TGIF you fool...we'll have to come back and get the rest and can you say bank on watters ??? screw the old zach mechanical ohio thing, that was a front dude... besides, I am an unknown now...an aka....with toys in new england..oh AND A SEMI EXPAT...so yea, go ahead and whin...

C.S.Watters, CA (Sent Friday, April 25, 2008 9:40 PM)



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