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By Ted Lanzaro, CPA
Construction business owners operating as single member LLC’s have consistently been the target of IRS audits. They file their business income and expenses on Schedule C of their personal income tax returns.
The individual construction business owners have a big, fat bull’s eye on their backs when it comes to tax compliance.
The IRS has determined that construction business owners operating as single member LLC’s have the most likelihood to be underreporting their income or overstating their expenses. This information is based on research done by the National Research Program (NRP), the arm of the IRS that collects data to measure taxpayer compliance.
The IRS has determined the following areas are where most of the “cheating” occurs. If this sounds like you, it’s time to stiffen up your record-keeping and documentation for 2016 in order to minimize the downside if you are audited by the IRS.
The five primary audit areas are:
There are definitely steps you can take to minimize the risks of being audited in these areas. Proper documentation of deductions is the key. For example, proper receipts, business mileage logs, and independent contractor agreements play a big role as to whether the IRS allows you to keep your deductions during the audit.
Another better, more proactive strategy would be to select a different entity to run your business such as a corporation, S corporation or partnership. The proper entity selection is based on your unique circumstance and requires professional guidance to determine.
For more information about tax strategy for construction businesses, contact CPA Ted Lanzaro by clicking here.