How To Avoid a Tax Audit for Your Dental Practice
Nobody wants to get audited by the IRS. And if you or your business is flagged for an audit, you could face a complex, time-consuming, and frustrating audit process, even if you’re found to be compliant with tax regulations.
As they say, an ounce of prevention is worth a pound of cure, and that’s true when it comes to taxes, too. While you can never guarantee that you won’t get audited, there are a few things you may be able to do to reduce your risk of raising red flags with the IRS. Here are some quick tips from the team at Tooth & Coin.
1. Opt For Full Or Part-Time Employees Over Contractors
Hiring team members as contractors may be tempting, especially since it can lower payroll costs and benefit costs, and simplify administration at your office. And while it’s legal to do so, hiring a lot of contractors can raise your risk of an audit. We recommend opting for full or part-time workers rather than hiring contractors, especially if they will be with your practice for a long time.
In addition, there’s also the risk that you could be misclassifying employees as contractors. There are certain criteria that a worker must meet to be a contractor, such as providing their own equipment, working independently, and setting their own schedules. While this won’t cause trouble from a tax standpoint, misclassification can run you into trouble with the U.S. Department of Labor, and you don’t want that, either!
2. List Your Income And Expenses As Accurately As Possible
The simplest way to avoid being audited (and to protect yourself if you are audited) is to file your taxes accurately. Accurately listing your expenses, income, deductions, and other information is the best way to protect yourself. If you have a complicated tax situation, you should definitely work with an accountant from Tooth & Coin to make sure you’ve got your bases covered.
3. Back Up Big Deductions With Proof
There are some deductions that the IRS tends to notice more than others, such as deductions for vehicles, business expenses, and charitable contributions. If you tend to take these deductions, make sure you’ve got all the documentation you need to prove them in case of an audit.
4. Avoid Excessive Deductions For Entertainment And Travel Expenses
You can deduct entertainment and travel expenses on your taxes. For example, if you travel for a continuing education course, you can deduct these costs. Or, if you host a party for your employees, you can deduct the cost of catering, alcohol, hiring a DJ, and other such costs.
However, these deductions are sometimes misused, so large deductions in these categories could raise your risk for an audit. That’s not to say that you shouldn’t use these deductions. But again, you should make sure you have all of the necessary documentation, and you should work with an accountant to make sure you claim them accurately.
5. Report All Of Your Income Accurately
Lots of dentists have income from other sources, such as rental properties, long-term investments, shares in other dental practices, and so on. When you report your income, make sure that you’re reporting all of this income accurately, not just income from your dental practice. Failing to report all of your sources of income is a sure-fire way to raise your risk of an audit.
Need Help Filing This Tax Season? Work With Tooth & Coin – We’re Here To Help!
At Tooth & Coin, we specialize in tax preparation for dentists and dental practices throughout the nation. We can help with federal, state, and city taxes, and ensure that your tax returns are accurate, complete, and filed on time. If the upcoming tax season has you feeling stressed, we’re here to help. Schedule a consultation online or give us a call at (877) 265-2121 to speak with one of our team members, and get the help you need.