Will I Get Audited? Errors That May Get you Audited
Will I get audited? This is a question that many small business owners often ask themselves. Be careful when it comes to your deductions. The IRS looks for higher-than-average deductions in each category as a signal that things may not be right.
The most common deductions that stand out as potential problems are travel deductions, meal deductions, and business mileage. These deduction categories are all legitimate, but make sure you back all your claims up with documentation.
Deducting Business Meals, Travel and Entertainment
Schedule C offers many tax deductions for the self-employed; however beware of claiming excess deductions. A large write-off in the area of business meals, travel, and entertainment could set off an alarm, especially if the amount seems too high for the business. Auditors are on the lookout for personal business meals or claims that don’t satisfy the rules.
To qualify for a business meal or entertainment deduction, you must keep detailed records for each expense. You will want to document the following: the amount, the place, the people in attendance, the business purpose and the nature of the discussion or meeting. Also, you must keep receipts for expenditures over $75 or for any expense for lodging while traveling away from home. Without proper documentation, your deduction is lost.
Travel Deduction – Business Training or Business Meeting
To qualify for a travel deduction, you must also keep detailed records with proof of the business purpose for the trip. Your travel must be business first. A trip to attend a national training session or meeting with an out of town client is deductible. Transportation to and from, lodging as needed, and meals are all deductible. Proof for this trip would include notes about the client, an agenda or programs from the training sessions. Any entertainment or sightseeing is not deductible. You can take extra time for personal vacation but the meal deductions and lodging for that time period are not deductible. The transportation to and from the area is still deductible in full.
Travel Deduction – Family Vacation
A family vacation is planned, and you decide to check out local competition for ideas to take back home. This does not qualify the trip as a business trip; however you can deduct expenses that occurred because of the research time.
To avoid the constant question of “Will I get audited?” it is imperative to have strong documentation confirming all legitimate deductions.