Avoid Common Audit Traps

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Source:  SBA.gov
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   It is very important to be aware of potential red flags and act on them before the IRS does:

• Classifying Employees as Independent Contractors – Independent contractors and employees are not the same, and it's important to understand the difference. In the eyes of the IRS, misclassification can be seen as an attempt to avoid payroll taxes, and non-compliance can bring penalties and back taxes.

• Home Office Deduction – This deduction is very specific and not all home-based businesses will qualify. Likewise, if you run your business from a commercial location and claim the home office deduction, you might trigger some interest from the IRS. Know how to determine if you are eligible to claim it, and what specific expenses you can write off.

• Large Sum Miscellaneous Deductions – If you claim a large amount of itemized deductions relative to your income, the IRS will get suspicious. Likewise, if you bucket a large amount of miscellaneous expenses, you may raise eyebrows. Be specific and label every deduction.

 • Keep Business and Personal Expenses Separate
The IRS scrutinizes personal expenses that may have been claimed as a business expense, such as the use of a business vehicle for personal use. Be diligent about keeping good records. Maintain a separate bank and credit card account for your business.