The ATO is always on the lookout for business which might be consciously cheating the tax system by claiming non-applicable deductions and credits or by underreporting its taxable income. A good thing is that it releases of a list of risks every year about what they will consider in their tax audits. When it comes to accounting for small business, business owners have to be aware of some warning signs that could invite an audit.
- Underreporting income: The ATO keeps track of businesses’ income each year. If it finds a major reduction in income in a particular year, it can order a tax audit to take a closer look at its finances. In many such cases, businesses are found to be underreporting their income to save tax money. In tax audits, ATO focuses on things like expenses claimed which are over the industry benchmark, capital gains and property transactions, among others.
- Over claimed entitlements: While it’s possible to write off certain business expenses, people take advantage of this and would illegally write off expenses by including expenses related to their hobbies and personal interests in business expenses. This is illegal and can invite a tax audit. Likewise, it’s also important to claim home office expenses correctly. A tax expert specializing in accounting services can help you claim such expenses so that you can qualify for deductions. In addition, it is important to lodge Business Activity Statement (BAS) in a timely manner.
- Excessive donations: The ATO keeps track of all the charity donations that a business makes each year. If you’ve made more than generous donations in a particular year, it can trigger an audit. So, ensure you keep all records and receipts of donations for any explanation needed at the time of claiming deductions.
- Disparity in numbers: Ensure you double check all the numbers in various forms before submitting. To avoid mathematical errors, it’s always recommended to let professional accounting services handle your taxes. Contact a tax agent who specializes in accounting for small business to file various forms. They will make sure that all the numbers add up correctly.
Image Source: Ben Hosking / Flickr