The last thing anyone wants is to be audited by the IRS. One simple way to avoid waving a red flag at the IRS is to be aware of this . . .
Information Matching
The IRS receives a significant number of informational returns from businesses that are required to report payments they made to vendors by issuing 1099-MISC and 1099-NEC forms. Payment processing companies, such as your credit card processor, are also required to report payments by issuing form 1099-K.
If your business tax return or Schedule C reports a lower amount of sales than what is reported on Form 1099, then this will cause a red flag at the IRS due to their information matching program. The way to avoid this is to add up all of the 1099’s received to make sure the totals showing on the 1099’s are not greater than what you reported on your tax return. Sometimes there can be differences due to timing and because payment processors send deposits to businesses after they deduct their fees. The way to fix this difference is to make accounting adjustments to account for these differences, which is what your CPA or tax preparer should be doing.
Conclusion
Running a business is hard enough and the last thing you want is to be audited by the IRS. It’s important to be prepared and as accurate as possible with your record keeping to avoid potential issues.
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