How to Avoid A Tax Audit for Your Dental Practice
It’s that time of year again—taxes will be here before you know it. For a lot of dental accountants, the stress of dealing with taxes can be overwhelming to say the least. Add to this the threat of audit from the IRS, however, and it makes perfect sense why most people would prefer to hide under a blanket rather than figure out taxes for their practice. Just because audits can happen doesn’t mean that they will, however, and you can drastically reduce the chances of running into one by taking a smart, mindful approach to how you handle taxes for your practice.
Think you’re destined for an audit? Here are a few ways to ensure it doesn’t happen to you this year.
1. Watch Out For Hiring Too Many Independent Contractors
It’s no secret that hiring independent contractors can be an excellent way to keep payroll costs down, not to mention employee taxes. While it’s completely legal to hire independent contractors, relying too much on this subset of workers instead of hiring full-time or part-time employees can certainly raise red flags with the IRS.
You may want to hire independent contractors to perform occasional work (marketing, website work etc.), but if you’re hoping to enlist someone’s help for the long haul, you’ll want to hire them as a part-time or full-time employee.
2. Be Accurate WIth Your Numbers
Let’s get one thing straight—the IRS doesn’t like to see rounded numbers. Many dental accountants think that rounding numbers on returns can help to make things more clear and save time, but in the end, it just looks like an attempt to cover up inaccuracies. Rather than trying to make things easier and less number-heavy, be sure to list income and expenses as accurately as possible—you’ll be far less likely to be flagged for an audit.
3. Don’t Repeatedly Report Losses
Depending upon expenses incurred throughout a specific year, it may be possible to report a loss on your practice’s taxes. Do this for more than two out of five years, however, and you’ll dramatically increase your chances of running into an audit. At the very worst, you could even be considered a “hobby” by the IRS, which would cause all expense deductions to be disallowed. Obviously, this is a situation that all dental practice accountants will want to avoid, despite the benefits of reporting a loss when the opportunity presents itself.
While getting audited can happen, there are things you can do to keep this scenario from ever occurring if you’re careful. Take the right steps, and you’ll never have to deal with an audit from the IRS.