Oh the IRS audit. It’s one of the most feared events in the life of an entrepreneur, but the factors that trigger an audit can seem more mysterious than Stonehenge or crop circles. And this year, with the new 1099-K coming to many online sellers, small business owners are afraid of falling prey to an audit. This is due to factors like potential double reporting of income on the 1099-K.
Fortunately, the IRS’s method for auditing a small business is slightly less mysterious than the origins of Stonehenge. The IRS decides to audit by following a formula. They compare your return again industry “standards” and if a line on your return seems suspiciously different from industry norms, your return gets kicked up the chain until an auditor decides if its time to investigate your business further.
The IRS isn’t totally opaque. They release those industry standards every few years, and Outright made a handy widget to try and help you. So choose your industry below and quickly and easily compare the IRS’s numbers to your own Schedule C to get a clearer idea if you might be audited this year:
If this leaves you with questions about your taxes, be sure to consult a professional who deals with businesses in your industry!