5 tax audit red flags for photography businesses

Mar 9, 2012

Topic: Taxes & Accounting
Time Investment: 5 Minutes
Suggested Product:  Taxes 101, Ultimate Tax Kit


To piggyback on my recent post about taxes, let's look at five things that raise red flags with the IRS about small businesses, including photography!  I consulted my CPA, and these were the main things he said. These are in no particular order or all inclusive!


Unreported Income

Every document you file with state sales tax is a record. Same with the companies that send you 1099.  The IRS has theirs hands in all their pots, so make sure your numbers are adding up to include these!  Same goes for differences between your state and federal returns! Paypal is an online resource commonly used by photographers that does trigger the reporting on a 1099 after a certain income level.


Entertainment/Food Deductions

Ensure the amount being deducted is in proportion to the business size and nature of your business.


Great variance in income from the year before

If you were in business the year prior and are making excessively more or less (same goes for deductions), this will look suspicious and warrant a second looking over. Not to be said that you can't double your income or have double the deductions, just make sure your records are complete!


Home Office Deduction

I should have put this as number one, but we're not ranking these.  These were the first words out of my CPA's mouth.  Since there has been such an increase in abuse over home office, make sure your records and ducks are all in a row. Don't let it scare you from deducting your office, especially if you have a studio!


Filing a Schedule C

Filing this form, which accounts for profits or losses from business, can serve as a big red flag. Statistically Schedule C's seem to be on the top of the IRS pile for audits. (See the IRS Schedule C here).  This goes hand in hand with claiming a loss for a business.  You may legitimately have a loss, but the IRS is going to want to check it out.


Double check your return!

Taxes are stressful enough without being audited, even if you're not at fault. Don't let your sticky keyboard fingers raise a red flag! Being audited isn't necessarily a bad thing, other than stress! If you have all your records and money in order, you should be good to go!

Check out the Accounting Spreadsheet for Photographers to simplify managing your business finances.


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