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Navigating Tax Audit Risks: Expert Insights for Hawaii Businesses



Are you concerned about the possibility of an audit? It's a common worry among our clients, and for good reason. The key to audit-proofing your finances isn't just about reporting all your income (though that's crucial). It's also about understanding how your tax return compares to others in similar situations.

 

The IRS uses a mathematical model known as the Discrimination Index Function to analyze tax returns. This model looks for deviations from the norm among taxpayers in similar financial situations. For instance, if your business reports $50,000 in travel deductions but the industry standard is closer to $5,000, your return might be flagged for further review.

 

However, this doesn't mean you should shy away from legitimate deductions. The secret lies in maintaining meticulous records. By having solid proof of your deductions, you can confidently navigate the audit process if it comes to that.

 

For personalized advice on how to manage your tax situation and minimize your audit risk, our team at Verity CPA is here to help. Contact us at 808.546.5026 ext. 303 or via email at info@verity.cpa for expert guidance tailored to your unique needs.

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