Can your small business' fixed assets stand up to IRS examination?
June 18, 2012
Small businesses are often closely examined by the Internal Revenue Service (IRS) because they tend to deal with cash more often than their larger counterparts - and don't always report the entirety of their cash income on their tax returns.
In an attempt to uncover instances of underreporting, IRS auditors can carry out pre-audit analyses of companies, as well as the lifestyles of their owners. For instance, as author and accountant Bonnie Lee writes for Fox Business, Schedule D and the depreciation
schedules of a business' fixed assets
can offer insight into the flow of capital assets through the company and point toward how new purchases of computers, company vehicles, property and the like were funded.
"The agent will also measure consistency of inflows and outflows," the source notes. "For example, is the profit low but massive amounts of debt have been repaid or new equipment was put into service without financing?"
As CNN Money notes, some pursuits people might not consider to be businesses may qualify as just that under IRS standards. For instance, bloggers who can accurately back up this claim may qualify for significant deductions.