Business Income-Related Red Flags

Nobody wants a surprise letter from the IRS. And when it comes to your business income, there are a few red flags that could draw attention even if you’re not doing anything wrong. Here are some of the most common income-related red flags we see and how to avoid them:

• You forgot to include side or payment app income. Platforms like Stripe, PayPal, Venmo, and Square report that income now. If you’re only counting what hits your main bank account, it’s easy to miss something.

• Your deposits don’t match your sales. If your bank shows more (or less) than your actual sales, it can look like you're underreporting even if it’s just messy tracking.

• You’re writing off a lot with barely any income. Big deductions with small revenue can raise red flags. Make sure your numbers make sense and match your actual business activity.

• Your numbers look different every year. Sudden drops (or spikes) in income without a clear reason could get noticed. Good records help you explain the “why.”

• Mixing personal and business income. Depositing personal funds into business accounts (or vice versa) without proper documentation makes your financials messy and harder to defend if questioned.

• Inconsistent reporting across documents. What you report on your tax return should match your bookkeeping. Discrepancies between forms, reports, and filings can create unnecessary scrutiny.

• Cash-heavy businesses not properly tracked. If you run a business that handles a lot of cash (like hospitality, beauty, or retail), the IRS pays closer attention. Proper logs and consistent records are essential.

If the numbers are off or things aren’t tracked clearly, it can look worse than it is. And that’s where we come in. Need a second set of eyes on your books? Let’s get your numbers clean and audit-ready, without the stress.