The economy of recent years has caused many people to involuntarily become entrepreneurs. They pursue the world of small business from different directions. Some work as consultants in their areas of professional experience; others buy or start businesses that follow interests outside their former cubicle world.
One factor that all small business owners share is scrutiny by the IRS. Except for the ones who start tax preparation companies, they all need an adviser regarding taxation. The IRS claims that most tax cheaters are self-employed. These people are therefore closely monitored to assure they follow the myriad rules that govern small business taxes.
The Small Business/Self-Employed Division is the largest group of the IRS, comprising 47,000 agents. Small businesses are defined as both proprietors with several employees and solo operations involving one person working from home. Most IRS audits target unreported income and overstated expenses. The best defense for entrepreneurs is consulting an enrolled agent list for a tax expert.
Small business owners need information about the value provided by a tax practitioner with enrolled agent certification. They are often unaware of the benefits an EA delivers for both tax preparation and IRS audits. As the IRS increase enforcement actions against small businesses with the examination process, enrolled agents will help defend a growing number of entrepreneurs.
Several key areas are covered in enrolled agent study that aid the self-employed during IRS audits. In most cases the IRS requests proof about business sales as well as expenses that appear excessive or fit into special categories. Commonly questioned expenses that require special documentation are related to home offices and business use of personal vehicles.
Entrepreneurs also need to learn of the help enrolled agents provide for other matters of rising importance to the IRS. One of these subjects is accurate classification of employees. Improperly classifying employment arrangements as independent contractors brings trouble to the business. When the IRS finds that a worker who was called an independent contractor is actually an employee, the business is responsible for back employment taxes – including what should have been withheld from pay but wasn’t.
In fact, the entire issue of payroll taxes is another major IRS concern with small businesses. Fortunately, payroll is a critical part of enrolled agent education so that an EA presents optimal advice for avoiding costly mistakes. Failure to remit withheld employment taxes can result in a Trust Fund Recovery Penalty on any person within the business who is responsible for payroll. Each year, the IRS assesses over 50,000 such penalties averaging $21,000 per individual.
In-house review of payroll processing by an enrolled agent adviser is certainly superior to having the IRS identify errors. In addition, an EA can respond to IRS notices for an entrepreneur so that the small business continues to function without disruption.