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Avoiding an IRS Audit – Salon Owners & Booth Renters

We all shutter at the thought of an IRS audit but sometimes it’s unavoidable. To lessen your chances of this nightmare happening to you, study up on the practices that make the possibility of an audit more likely. Salon owners and booth renters: Consider the following to help reduce your chances of the A-word: Cash Transactions – Businesses that have a lot of cash transactions, including tips, are among the most audited. Be sure and keep detailed records, including your tips and don’t forget to declare income. Unprofitable Businesses – If your business doesn’t earn a profit for three out of five years, the IRS may consider it a hobby. Business Expenses – As tempting as it is to write off personal expenses as business expenses, don’t do it. The IRS will dig even deeper if the records aren’t clearly separated. Round Numbers – If all your amounts have zeroes at the end, such as $2500, etc., it may be a red flag, as the IRS may think that your business is estimating versus using actual figures. High Deductions – If your business has relatively high deductions compared to the amount of income it generates, it might raise a red flag. Keep careful records to show all such deductions are legitimate. Home Office Deduction – For some reason, the IRS is particularly interested in enforcing the provision that involves the deduction for a home office. Carefully weight the benefits of such a deduction over the increased likelihood of an audit. The Right Help – Other suggestions to help avoid an audit include hiring professionals to help. A certified accountant is worth the expense and using a good bookkeeper and payroll service will make the recordkeeping and tax preparation a breeze. Have you ever been audited? Any suggestions to help others avoid an IRS visit?  

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