Businesses have an obligation to their shareholders to turn as much of a profit as possible. Minimizing liabilities and obligations can be a big part of the company’s strategy for maximizing revenue. Taxation can be a major liability for successful businesses, but business spending and write-offs can help reduce your company’s tax obligations.
It is a smart strategy for companies to keep careful records of their transactions to maximize the write-offs available to them. Travel expenses, hiring services and even perks for employees can sometimes help a company reduce its tax liabilities.
However, it is crucial that the people working in accounting understand that they cannot inflate the write-offs that your company includes in its tax return. Getting too creative with what expenses they approve as write-offs or rounding up the value of write-offs could lead to tax avoidance issues for your company.
The IRS watches carefully for inappropriate write-offs
Invalid, inflated and otherwise inappropriate write-offs are major contributors to tax evasion by businesses. The Internal Revenue Service (IRS) has long scrutinized write-offs and deductions. It considers padded write-offs and other abuses of the write-off system as one of the “Dirty Dozen” — the most common tax scams.
The IRS aggressively looks for companies misusing write-off and will hold businesses accountable if possible. Companies might not only have to pay the amount initially written off but also interest and penalties for not paying those amounts originally.
Proper training of your staff is key to avoiding tax issues as a business. Having clear policies about write-offs and the use of expense accounts can help limit abuses as well. If your company does wind up accused of misconduct with its taxes, defending the company against those allegations could protect its reputation and financial solvency. An experienced attorney can help.
Notice: We are providing this as general information only, and it should not be considered legal advice, which depends on the facts of each specific situation. Receipt of this content does not establish an attorney-client relationship.