Professional service firms such as law practices, consulting agencies, architectural firms, and engineering companies are built around expertise, relationships, and delivering high-value results. While these firms excel in their core disciplines, managing the financial side of the business often becomes a time-consuming and stressful task. Bookkeeping, in particular, can drain resources and distract from client service. That is why more and more professional service firms are turning to outsourced bookkeeping to streamline operations and improve their financial health.
This is one a big area of concern that we hear from clients – how can I make sure I’m not audited?
Outside of the usual (like making sure you report all your income), one thing that’s important is not being too different from other taxpayers in similar situations as you.
The technical term for this is called the Discrimination Index Function. This is a mathematical model that compares your return to other’s and looks for differences. Basically, if you’re too different, that increases your chance of an audit.
One way we express this to business owners is in regards to the deductions they’re taking. If they have travel deductions of $50,000, and most people in their industry report travel deductions of only $5,000, that could open them up to further examination.
That being said, if you have a legitimate deduction, take it. Just always make sure to keep good records so if you are audited, you have proof to substantiate your deduction claim.
