AUTHOR: The Dental CFO
July 23, 2021
The words “IRS Audit” strike fear into the hearts of many taxpayers. There is no limit on how many times a taxpayer can be audited by the Internal Revenue Service. If your practice’s business return gets audited, it is a strong possibility that the IRS could issue an audit notice for your personal return. Sometimes an audit is triggered merely due to simple mistakes made by taxpayers which can be easily corrected without severe penalties.
Here Are 5 Reasons Why Your Practice Could Be Audited By the IRS
1. Mathematical errors on your return
Even unintentional math errors can cause your business to incur a fine and potentially be audited. You can avoid these kinds of errors by using a tax preparation software or tax preparer. One way you can prepare for filing your taxes is ensuring you are staying on top of your bookkeeping. You can hire an internal bookkeeper to account for monthly expenses, income, and other monetary exchanges, or outsource your practice’s bookkeeping to a dental CPA or accounting firm that specializes in medical or dental bookkeeping.
2. Failing to report all income
The IRS will receive every 1099 and W-2’s that you receive throughout the year. Ensuring you are reporting all income is vital to ensuring you do not encounter IRS fines or an IRS audit of your business. Extensive and organized record keeping can help with this issue. As mentioned above, hiring an individual or a firm to maintain your bookkeeping will go a long way in relieving potential headaches when filing company taxes.
3. Claiming large charitable deductions
While everyone hopes that large charitable deductions are accurate and true, for the sake of the cause they are claiming to help, the IRS does not. If your charitable deductions are rather large in comparison to your income, you will automatically rasie a red flag with the IRS. One way to ensure your practice is not fined is to maintain detailed records of all charitable contributions. This documentation will, for lack of better words, prove that your contributions are accurate and your practice is not trying to claim more deductions than it has earned.
4. Claiming 100% business usage for your company vehicle
Many business owners that do a lot of traveling claim their vehicle as a business expense. On your 4562 form for your car, you must account how much the vehicle is used during the year for business-related transportation. While it is not impossible for vehicles to be used for practice needs only, it is very unlikely. Ensuring your mileage is in line with your occupation and appropriately accounted for will help keep your pracitce off of the IRS’ radar.
5. Claiming unreasonable business meals, travel, and expenses
Business owners are notorious for claiming excessive deductions in Schedule C to account for business-related meals, travel, and expenses. While these expenses are necessary most of the time, you should try to avoid splashing out for lavish accommodations. Exceedingly expensive business-related costs can raise flags for the IRS. Be sure to keep your receipts as records to account for these kinds of expenses related to your business.
Choosing the Right Financial Management Firm for Your Practice
Once you’ve decided that bookkeeping and tax preparation is something outside of your practice’s wheelhouse and duties, it is important to partner with a firm that knows the unique challenges faced by dentists. With experience with dentists and practice financial management for over 50 years, The Dental CFO has the tools, knowledge, and strategies to help your practice grow and while managing the tedious work associated with finance management. Connect with us today to discuss how we can service your practice.