You are Being Audited
You have received a Notice of Audit or a Tax Agent has suddenly shown up at your home or business.
Being audited is no joke.
The audit can take several months or over a year. This audit will seem like a second job. You don’t have the time or tools to deal with this on your own. You have your own job to do and a business to run.
Why am I being audited?
Can I be audited by both the IRS and the Mass Dept of Revenue?
I didn’t claim my cash income.
What if I don’t have all my records?
I made up some deductions, will they find out?
I paid some employees under the table.
What if I can’t pay?
Are we going to lose the house?
Will they shut down my business?
Will I go to jail?
When the IRS or the Mass Dept of Revenue visits your place of business during an audit, you feel like your livelihood is threatened.
When are you audited, the auditors want ALL your records. They may even contact your vendors, customers and financial institutions directly. These include: supply houses, food wholesalers, Amazon, EBay, Paypal, liquor distributors, AirBnB, Homeaway, credit card merchants, SquareUp, Venmo, and anyone that issues you a Form 1099.
Things can get worse quickly. Both your business and personal taxes can be audited. Depending on what the Auditor finds, he can add additional years to the audit.
Personal Liability for Business Taxes: Trust Fund Taxes and Responsible Party Taxes
There is a domino effect that often happens when your business is audited. If your business owes taxes, you may also owe more personal income taxes. Even worse, you may be personally liable for business taxes if it is a Trust Fund Tax or Responsible Party Tax. These taxes include: Meals Tax, Sales Tax, Payroll and Withholding Taxes. If you are an officer or director of the company, you may owe these taxes, too.
Now they can put a lien on your house and garnish your personal bank accounts for taxes owed by the business. It does not matter if your business is incorporated.
Co-Mingling: Mixing Your Business and Personal Finances
The Auditor assumes that the owner of a small business is co-mingling.
Is your business incorporated or are you still a d/b/a?
Do you even have a separate business bank account?
Do you pay your personal bills from your business bank account because it’s easier? What about groceries, child support, rent?
Have you ever deposited business income directly into your personal account because the mortgage was due?
It will not be pretty if the auditor finds out that you have co-mingled. You could owe more money if you have mixed your business and personal bank accounts. The auditor will say that ALL the deposits in ALL of your accounts are “income” for your business and tax you on it. These may include personal accounts that you have with family members that really “belong” to them, including your children and elderly parents.
Audits are not limited to income tax. They include:
- Sales Tax
- Use Tax
- Meals Tax
- Room Occupancy Excise Tax
- Fuel Tax
- Withholding Tax and Payroll Tax
- Online Sales Tax
- Trust Fund Tax
- Responsible Party Tax
- Cigarette and Tobacco Excise Tax
- Corporate Excise Tax
- Marijuana Retail Tax
- Alcoholic Beverage Excise Tax
- Partnership Tax
Already been audited?
It may not be too late. You have the right to appeal the results of the audit, but you must do it before the deadline. This includes penalties.
Tax Audits: Dumbing It Down with Laura Brown©
Legal Terms Made Easy
Seeking professional help can save you time and money
Laura Brown is a successful business owner as well as a corporate and tax attorney. She understands what is needed to help you, your family and your business.