When the IRS suspects unreported income, they don't just ask you to prove what you earned. They build their own number. One of the most common methods they use to do that is bank deposit analysis. If you don't know what this is, that's a problem — because it can result in a significant tax assessment based entirely on deposits you made and can't adequately explain. How It Works Bank deposit analysis is an indirect method of reconstructing income. The IRS totals all deposits m

Most business owners interact with their tax professional once a year: hand over the documents, get the return filed, pay the bill. That model works fine if your tax situation is stable, simple, and doesn't change much. But for a lot of small business owners, that's not what's happening. A tax advisory retainer is a different kind of engagement — one structured around ongoing access, proactive planning, and year-round oversight rather than a single annual transaction. What It

Running an S-corp isn't just a tax strategy — it's a compliance structure. And compliance structures require maintenance. Most S-corp owners do two things consistently: run payroll and file the return. That's not enough. Here are seven things that should happen every year inside an S-corp, and why each one matters. 1. Document Your Reasonable Compensation Basis The IRS expects S-corp owners who perform services for the company to pay themselves a reasonable salary before taki

Most small business owners treat taxes like a one-time event. File the return, pay what you owe, move on. Then January hits and they're scrambling — missing records, making rushed decisions, and handing their tax preparer a mess to sort out in six weeks. The business owners who have the easiest tax seasons aren't more organized by nature. They made better decisions in May. The Window That Opens After Filing Once your return is filed, you have roughly eight months before thing

Being audit-ready doesn’t mean you expect the IRS to show up. It means your records are organized enough that if they did, you wouldn’t need to scramble. The businesses that survive audits cleanly aren’t doing anything special at audit time — they’re doing basic things consistently throughout the year. Here’s a year-round checklist for building an audit-ready business. It’s not complicated. It’s just consistent. Monthly: Close Your Books Every month, categorize all transactio

An IRS Letter 2531 is a correspondence examination notice related to income discrepancies. It means the IRS compared the income you reported on your return with the information returns (1099s) filed by third parties, found a difference, and is asking you to explain it. It’s not a full audit — it’s a targeted inquiry about specific income items. What Triggers a Letter 2531 The IRS receives copies of every 1099-NEC, 1099-MISC, 1099-K, and W-2 filed by payers and platforms. Thei

The state and local tax (SALT) deduction has been one of the most debated provisions in tax law since the TCJA capped it at $10,000 in 2018. The One Big Beautiful Bill Act raised that cap to $40,400 for 2026, with income-based phase-downs for higher earners. For small business owners — especially those in states with income tax — this changes the math on itemizing, entity structure, and pass-through entity tax elections. What Changed Under the TCJA, the SALT deduction for ind

construction workers construction workersHiring someone as an independent contractor instead of an employee has real tax consequences — for both you and the worker. When the classification is wrong, the IRS can reclassify the relationship and assess back employment taxes, penalties, and interest. Worker misclassification is one of the IRS’s top enforcement priorities because it directly affects employment tax revenue. Why the Classification Matters If someone is an employee,

heavy duty bulldozer heavy duty bulldozer When you buy equipment, a vehicle, or technology for your business, you generally can’t deduct the full cost in the year you purchased it. Depreciation spreads the deduction over the asset’s useful life. But Section 179 and bonus depreciation let you accelerate that deduction — sometimes taking the entire cost in year one. Knowing when to use each method is a significant tax planning lever. Section 179: Full Expensing in Year One Sect

Envelope EnvelopeIRS penalties add up fast. A failure-to-file penalty is 5% of the unpaid tax per month, up to 25%. A failure-to-pay penalty is 0.5% per month. On a $20,000 balance, penalties alone can add thousands of dollars to what you owe. But the IRS has formal processes for reducing or removing penalties when the circumstances warrant it. There are two primary paths: first-time penalty abatement (FTA) and reasonable cause. They work differently, have different requireme

Desk with paperwork Desk with paperwork Sometimes the IRS closes an audit with changes you never agreed to. Maybe you didn’t respond to the examination report. Maybe you missed the 30-day letter deadline. Maybe the IRS assessed tax based on a substitute for return (SFR) because you never filed. In any of these situations, the assessment stands — but you may have a path to reopen it through an audit reconsideration. What Audit Reconsideration Is An audit reconsideration is a p

Meals, travel, and entertainment are three separate categories with three different sets of rules. Mixing them up — or failing to document them properly — is one of the most common ways small business owners lose deductions during an examination. Here’s what’s deductible in 2026 and exactly how to document each one. Business Meals: 50% Deductible Business meals are deductible at 50% of the cost. The temporary 100% deduction for restaurant meals that existed in 2021 and 2022 h

If you owe the IRS and can’t pay the full balance, an installment agreement lets you pay over time. But not all installment agreements are the same. The type you qualify for depends on how much you owe, whether you’re current on all filings, and whether the IRS needs a detailed look at your finances before approving the plan. Here are the three main types, what each requires, and how to determine which one applies to your situation. Streamlined Installment Agreement If your t

If you drive for business, you have a deduction available. The question is which method to use — the IRS standard mileage rate or actual vehicle expenses — and whether you’re documenting it well enough to survive scrutiny. Vehicle expenses are one of the most commonly examined deductions in small business audits because of the personal-use component. The 2026 Standard Mileage Rate For 2026, the IRS standard mileage rate for business driving is 72.5 cents per mile. That means

The home office deduction is one of the most commonly claimed — and most commonly questioned — deductions for small business owners. The IRS has specific rules about what qualifies, and they’re stricter than most people think. Getting it right means documenting your space and your usage. Getting it wrong means losing the deduction entirely during an examination. The Two Requirements: Regular and Exclusive Use To claim the home office deduction, your workspace must meet two te

If you owe the IRS and you’ve been ignoring notices, there’s a point where the letters stop and a person gets involved. That person is a Revenue Officer. And unlike the automated system that sent those CP notices, a Revenue Officer has real enforcement power — liens, levies, seizures, and the authority to show up at your business. Having worked alongside Revenue Officers during my time at the IRS, I can tell you: this is not the stage where you want to be figuring out your op

You started selling things on Etsy. Or freelancing on the side. Or doing photography on weekends. It started as extra income, but now it’s generating real money. At some point, the IRS stops treating that activity as a hobby and starts treating it as a business — and the tax consequences of that distinction are significant. Here’s how the IRS draws the line, what factors they look at, and why getting this right matters for your deductions and your liability. Why the Distincti

Your IRS account transcript is a record of every transaction the IRS has posted to your tax account for a given year. Filing your return, processing a refund, assessing penalties, receiving payments, issuing notices — all of it shows up as a transaction code on your transcript. And most people who pull their transcript have no idea what they’re looking at. I used to read these every day as a Revenue Agent. Here’s how to pull your transcript, what the most important codes mean

You filed your return. The extension is submitted or the e-file went through. That feeling of relief is real — but this is exactly the moment most business owners make a mistake. They close the laptop, move on, and don’t think about their books again until January. By then, they’re behind again. Here’s what to do in the 30 days after filing to set yourself up for a significantly easier next year. Save a Copy of Everything Download a PDF of your filed return, all schedules, an

The Section 199A Qualified Business Income (QBI) deduction was set to expire after 2025. It didn’t. The One Big Beautiful Bill Act made it permanent starting in 2026. If you own a pass-through business — sole proprietorship, S-Corp, partnership, or LLC — this deduction directly reduces your taxable income by up to 20% of your qualified business income. Here’s what the QBI deduction is, how it works, who qualifies, and what changed now that it’s permanent. What the QBI Deducti