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In the final part of our three-part series “how to respond to an IRS audit in 2022,” we’re focusing on the actual response to Internal Revenue Service (IRS).
Watch the video below to learn more from Milikowsky Tax Law’s Founder and Managing Attorney, John Milikowsky, as he explains how to craft the right response.
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John Milikowsky, Founder of Milikowsky Tax Law, often faces these questions: “why do you do what you do?”  and “why are you a tax attorney?” To him, the answer is simple, “I really enjoy keeping businesses in business.”  
Listen to John himself explain why he does what he does- defend businesses against a battle against government agency audits. 
 
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Different business models are able to take advantage of tax benefits based on their structure. Business owners should keep in mind that the type of business formation chosen impacts costs, liability, and team configurations. 
Choosing the right model can set your business up for success because you understand the lay of the land, and avoid paying unnecessary taxes when the

Employment Development Department (EDD) performs many services, but their primary role that impacts small businesses is collecting and auditing payroll taxes. Employers pay payroll taxes for W-2 employees, but not for 1099 independent contractors. 
The line between an independent contractor and an employee was more concretely defined with the implementation of Assembly Bill 5 (AB-5). A worker must

During the COVID-19 pandemic, the Small Business Administration (SBA) doled out Payment Protection Program (PPP) loans to qualified businesses. Over the course of the program, SBA granted over $809 billion in loans.
SBA is currently processing loan forgiveness and loan denials. Businesses that meet SBA PPP loan forgiveness terms are eligible for forgiveness of their PPP loans. 
SBA PPP Loan

Internal Revenue Service (IRS) will flag businesses for an audit when the agency finds suspicious activity in your business’ tax returns. The suspicious activity may be innocent in nature, but IRS performs an audit to ensure your business paid the required taxes. 
Though, occasionally, the agency will randomly audit businesses. This instance is less likely, but can still occur. It’s

What Taxes Does My Small Business Have to Pay?
Small business owners may have to pay additional taxes on top of income taxes depending on if you have employees, how you classify your business, and your business expenses. 
The various taxes your small business may have to pay include:

  • Income taxes 
  • Employment taxes 
  • Estimated Quarterly Taxes 
  • Self-employment taxes 

Income Taxes

The U.S. Small Business Administration (SBA) is currently going through loan forgiveness applications to approve or deny claims. Businesses that filed for a PPP loan during the COVID-19 pandemic and used the funds correctly can apply for loan forgiveness.
According to SBA, the loan is eligible for forgiveness if, “during the 8- to 24-week covered period following loan