Because the IRS is so stretched for resources, only 0.59% of all individual tax returns in 2018 were audited.
If you’re a small business owner, it’s important to note that the IRS has a few red flags that draw attention for audits.
One area to keep an eye on is your expenses.
It’s imperative that you keep immaculate records of your expenses.
Deducting Business Meals, Entertainment and Travel
If you claim a large deduction for meals and travel on Schedule C, it’s a red flag to auditors.
In general, a big write-off will raise alarm, especially if the number seems too high for the business type.
There are strict qualifications for personals meals.
For meal deductions, you must keep detailed records that document:
- The amount
- People Attending
- Business Purpose
- Nature of the Discussion or Meeting
Also, you must keep receipts for expenditures over $75 for lodging while traveling away from home.
Without proper documentation, your deduction is shot.
It’s also very likely that IRS examiners will make sure you aren’t deducting entertainment expenses such as golf fees or sports tickets for a client outing.
The 2017 tax reform law eliminated the deduction for entertainment expenses.