3 tax mistakes that can trigger a business audit — and the tools to stop them

Tax season is upon us and while we know that you'd never intentionally try to get on the IRS' bad side, it's worth the quick reminder to be wary of how you do your taxes and avoid mistakes. If you're a new business owner, it can be hard to know every single thing you need to do to have a successful tax season. But making a mistake can mean you get hit with an inaccurate tax bill or, worse, an audit.

Your best bet is usually to work with a certified tax professional who can give you year-round guidance. But if you're doing it alone for now, here are tools to help you avoid tax mistakes, plus the mistakes that might actually get your business flagged for an audit.

Using comprehensive tax and accounting software is one of the easiest ways to manage tax time and avoid making mistakes. The best accounting software connects to your bank accounts, business credit cards and payroll services to automate expense tracking and ensure accuracy. Then, you'll want tax software that integrates with those accounting platforms to automatically import all that data.

QuickBooks is a strong accounting option that we often recommend because it integrates with your bank accounts and credit cards, plus third-party apps like PayPal and Square so you barely have to lift a finger to track your transactions. Plus, the most basic QuickBooks plan lets you track income, sales and expenses, organizes receipts, create invoices, runs P&L reports and more.

FreshBooks also offers some handy capabilities, like categorizing your expenses and itemizing them to make it easier for tax season. It also allows you to take photos of business receipts — an added layer of efficiency for expense tracking.

On the tax front, TurboTax is one highly recommended tax platform because it syncs directly with QuickBooks so you can import your data automatically. It also offers on-demand advice from tax experts.

Another option, H&R Block offers unlimited on-demand support over chat or video with certain plans and is also a popular name in the tax space.

One of the more glamorized benefits of running a business is getting to make deductions like dinners where business was conducted, business travel, a portion of your rent and more. These are pretty normal deductions for certain businesses, but if you have too many write-offs, it can raise some eyebrows — especially if it may not be considered a reasonable, ordinary expense for the type of business you run.

Deductions lower your taxable income and having too many of them can be seen as if you're trying to claim personal expenses as business ones, or even trying to evade taxes.

A loss is when your business' expenses and deductions are greater than its gross income. Losses are normal for a business, especially new ones. However, claiming a loss every single year can raise some flags around the legitimacy of your business.

It calls into question whether your business expenses are truly ordinary and necessary expenses, or whether you're just trying to offset your personal tax bill by claiming business losses.

After too many losses, the IRS may consider your business a hobby and you won't be allowed to claim deductions for it.

The IRS cross-references many income documents (including 1099s, bank statements and other forms), so they'll know if there are any discrepancies between what you report as your income and what your income actually was. These discrepancies may lead to an audit.

Underreporting business income is a common mistake and sometimes it's not even done intentionally. Sometimes, you may forget about income from freelance or one-off gigs. Other times, you may think it's fine to just estimate or round up or down on your income but when it comes to your taxes, you need to provide exact numbers.

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