From the MASSAGE Magazine article titled, “Money Management: Your Small-Business Bank Account and Credit Cards,” by Margo F. Bowman in the August 2008 issue.
1. When you sell your business, the income of the practice is usually the basis for the formula for the sales price. Not reporting income will lower the perceived value.
2. Using the business code on the tax return (Form 1040 Schedule C Box B), IRS compares your data to similar businesses. Income represents 100 percent and then each item of expense on that return is computed as a percent of revenue.
The business code matches your information to that of all other practitioners using the same business code. The larger the variance between the norm and your return, the higher risk of an audit.
3. When you go to a bank for a loan, they look at your income to ensure you can repay this debt.
4. If you ever need to make a disability claim or prove loss of income in an accident case, your reported taxable income will be the source for the court’s computation. Not having properly reported income will be detrimental to your monetary recovery.
—Margo F. Bowman