Running a small business in Georgia requires you to handle many tasks every day. Between serving customers and managing staff, you might easily forget about tax rules. Unfortunately, simple mistakes can catch the eye of the IRS or the Georgia Department of Revenue and turn your dream business into a stressful problem.
Mismatched income reports raise red flags
The IRS and state tax authorities use smart computer systems to check every dollar you report. If your tax return says you earned $75,000 but your bank forms show $90,000, the system catches this error immediately. These programs compare your numbers with data from banks and clients. Even honest mistakes make auditors suspicious. Therefore, you should check all your income documents carefully before you file your taxes.
Large business deductions attract attention
You can legally deduct costs for travel, meals and home offices. However, the IRS checks if these costs make sense for your income level. For example, claiming $30,000 in travel when your business only made $60,000 looks suspicious. Similarly, claiming 80% of your home for a consulting business also seems excessive. Instead, you should keep your expenses reasonable and save every receipt to prove your spending.
Labeling workers incorrectly creates risks
Many businesses struggle with how they categorize their workers. Some owners call employees “independent contractors” to save money on payroll taxes and benefits. However, the IRS and Georgia Department of Labor use strict rules to decide a worker’s true status. Watch out for these warning signs:
- You control when, where and how the person works.
- The worker uses your tools and only works for your company.
- You train the worker and make them a permanent part of your team.
- The relationship lasts a long time rather than ending after one project.
Mistakes in this area lead to expensive fines and back taxes.
Reporting losses every year makes the IRS suspicious
The IRS expects a real business to make a profit eventually. If your company fails to show a profit in at least three out of five consecutive years, auditors may question whether your business is just a hobby. This “hobby loss rule” stops people from using personal interests to lower their taxes. Consequently, you must show that you are trying to make money by using business plans and marketing.
Take action before the IRS contacts you
Does your business show any of these red flags? If so, you can fix these problems now with better records and honest reporting. If you receive a notice from the IRS or Georgia Department of Revenue, respond quickly with organized paperwork. Finally, seeking help from legal counsel can protect your business and give you peace of mind.