The entrepreneur lost his business after an IRS tax audit. He learned valuable lessons about the importance of structuring your company to minimize losses and expenses, as well as the consequences of not having a plan in place for dealing with audits.
The irs audit triggers 2020 is a blog post about how one entrepreneur lost his business after an IRS tax audit.
Jordan Markuson, a serial entrepreneur, lost one of his companies due to a tax examination.
Jordan Markuson has six startup companies under his belt. He’s built up his startup street credibility with everything from a real estate investment firm to a supplement company.
However, although this young entrepreneur had early success, one of his businesses encountered a snag. The IRS is a stumbling barrier.
Markuson and three other partners founded a domain business in 2003 that purchased and sold internet names.
Markuson remembers, “At the time, the sector was extremely hot for a few firms, and we were doing pretty well.” “We often sold assets for 30 times what we paid for them.”
The business operated well for years, but Uncle Sam raised an eyebrow in 2011 when the large income stream raised a red flag.
“The IRS couldn’t figure out how we were generating money, so they wanted to look into it,” says Markuson, who got notification that the business would be audited in the mail.
Markuson sought assistance from his accountant. The IRS looked through his documents for the following six months. The transactions were scrutinized. Accounting ledgers were double-checked and checked again. The income statements were examined closely.
He describes the auditing procedure as “long and laborious.” “However, we had fantastic literature. Everything was in order. The IRS, I thought, would shut the books and go on.” That wasn’t the case, however. While the IRS found no issues with the company’s revenue, Markuson claims that business write-offs were a problem.
“The auditor had caught me improperly expensing dual-use household items,” he explains. Although it seems to be a minor issue, the auditor examined three years’ worth of tax returns and informed Markuson that he owed the government a significant sum of money.
“The increased tax obligation and accounting expenses amounted to one-third of the entire income the next year,” he adds. “Paying it back becomes a losing fight since IRS back payments are not expenditures, therefore they come out of your earnings. I was putting aside 70% of my earnings for taxes.”
His business’s financial flow was disrupted by the increased tax burden, and the company eventually went bankrupt. While the long procedure led to the company’s collapse, Markuson believes there are lessons to be learned from his experience for future entrepreneurs.
Maintain your organization.
Don’t overlook the power of an accordion folder—or anything similar to one. Markuson claims that if his finances had not been structured, his audit would have taken considerably longer.
He recommends putting everything in its own folder. Maintain careful records, ensuring that each transaction is labeled. Remember to preserve all papers for a minimum of seven years.
Consult a reputable accountant.
Find an accountant who is knowledgeable about not just financial procedures but also audits. Markuson advises that you ask a lot of questions, particularly if you don’t understand some tax forms.
Always be truthful and professional.
While no one wants to be audited, Markuson emphasizes the need of being honest and professional.
“While I did incur extra responsibility and the audit took a long time, I think that if you are honest and professional with your auditor, they will reciprocate,” he adds.
Maintain an optimistic attitude.
Keeping a good attitude throughout an audit is difficult, but Markuson believes it is essential.
“Surround yourself with positive individuals who can assist you in working through the problems that may arise,” he advises. “The auditor has a task to do. It’s not a smear campaign.”
Markuson believes the procedure was a learning experience, even if he doesn’t want to do it again anytime soon. He’s used his newfound business knowledge to his most recent venture, Aqua Health Labs, a supplement company.
The irs examination department is a government agency that audits businesses in order to make sure they are following the law. In an audit, the IRS will look for mistakes and discrepancies in a company’s tax returns.
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