The IRS audits thousands of Georgia business owners each year. Knowing what draws scrutiny can help you file with confidence.
Unreported income raises immediate red flags
Every institution that pays your business reports that income to the IRS. The agency then matches those figures against your return. A gap between what was reported and what you filed can trigger at minimum a correspondence audit. Common sources business owners overlook include:
- Form 1099-K payments: Transactions processed through platforms like PayPal or Square must appear on your return.
- Old brokerage distributions: Accounts you rarely check still generate reportable income.
- Schedule K-1 pass-through activity: Unreported pass-through income is one of the IRS’s top matching targets.
Keeping a running log of all income sources throughout the year makes reconciliation far easier at filing time.
Excessive or inconsistent deductions attract scrutiny
The IRS uses industry codes to benchmark typical expense ratios by profession. If your deductions run 20% or more above the norm for your field, your return may get a second look. Business meals, vehicle use and home office claims are among the most reviewed categories.
Losses are another flag. Claiming a net loss year after year can lead the IRS to question whether your operation qualifies as a legitimate business under the hobby loss rules in 26 U.S.C. § 183. A business that shows a profit in at least two out of five years generally avoids that challenge.
Georgia’s mandatory federal change reporting rule
Georgia has its own audit trigger that many business owners miss entirely. Under O.C.G.A. § 48-7-82, if the IRS modifies your federal return, you must report that change to the Georgia Department of Revenue within 180 days. Missing that deadline removes the standard statute of limitations and gives Georgia an unlimited window to assess back taxes, interest and penalties under O.C.G.A. § 48-2-49.
Next steps if you are concerned about an audit
A business tax audit can involve complex state and federal issues at the same time. An attorney experienced in tax audits can help you understand your options and respond effectively.