Encino, CA (PressExposure) March 15, 2011 -- Business owners struggling in the current economic climate need to know that in addition to suspiciously large deductions, even simple mistakes in bookkeeping can capture IRS attention and lead to IRS audits, penalties, and potential jail time.
In a recent article titled "How to Stay Out of Tax Hell" on the CBS Interactive Business Network BNET, tax relief expert Michael Rozbruch shared important tax help advice for business owners, including how failure to pay payroll taxes and inadequate bookkeeping could land businesses in IRS trouble.
"Never do a tax return by hand," said Rozbruch, founder and CEO of Tax Resolution Services, Co., an Inc. 5000 company. "Such tax returns are likely to be illegible and contain mathematical or transposition errors and will likely trigger an audit."
Rozbruch adds that another common mistake he sees amongst his clients is poor accounting practices. Businesses owners should not attempt to do their own books manually or through accounting software like QuickBooks unless they're qualified. This is where entrepreneurs who are great at selling products or services often fail in the back office. "If you don't have a bookkeeping background, you don't know what you're doing with QuickBooks," he said.
Rozbruch cites a case in which his client ran an HVAC company and had his wife to do the bookkeeping.
"She wasn't trained and didn't know how to do basic things like double-entry accounting," he says. "They thought they were making money because she wasn't putting entries in properly. She was showing a $300,000 gain for the year, when they'd actually lost $50,000. A huge difference."
She also had difficulties paying payroll taxes on time. Her inadequate bookkeeping practices cost the company big-time: Rozbruch said the IRS assessed them $175,000 in taxes, penalties, and interest. In the end, his firm was able to remove $50,000 of penalties and put them on a properly structured IRS installment plan for the balance.