| When a person files a Schedule C form on their | | | | You also need to be careful claiming the home office |
| income tax return, they may as well place a big red | | | | deduction. To qualify for this deduction what you need |
| sticker on their tax return that says come audit me. | | | | to do is to have a separate room in your house that |
| This form dramatically increases your audit risk profile | | | | you use Exclusively for your business. This room |
| and you must be prepared to survive this audit | | | | should have a separate door and should not be used |
| otherwise it can be very costly. The IRS is increasing | | | | for storing kid's toys. If any customers visit you at your |
| the number of agents whose job it is to specifically | | | | home office, then keep a log and have the person sign |
| audit tax returns that have filed a Schedule C form. So | | | | the log with the date, and purpose of the visit. This is a |
| the first step in winning an audit is not to get picked for | | | | sure fire way to document to the IRS that the room is |
| one. | | | | being used for a business purpose. |
| The most important item in avoiding an audit is to | | | | Taking a depreciation deduction on a new computer or |
| make sure that you have the correct business code | | | | vehicle can also increase your audit potential. You |
| on the form. Every business must write down a | | | | must remember that whether it is a computer, vehicle |
| business code and the IRS uses these business codes | | | | or some other asset, it must be used in your business |
| to match up the deductions on the Schedule C to | | | | for you to claim the depreciation deduction. If the |
| make sure they fall in line with the national average. | | | | computer is the only one that you have, then you can |
| For example if you run a business as a bookkeeper | | | | not claim 100% business usage because you would |
| your code may be 541219. If you deduct $3,000 in | | | | also use this computer for personal use. |
| promotional and entertainment, the IRS will say why | | | | Finally if your schedule C business shows a large loss, |
| does a bookkeeper spend so much money on | | | | you run the risk of the IRS saying that your Schedule |
| entertainment? Yet if you were in a sales type | | | | C business is really a hobby and not a business. As a |
| business this would be perfectly permissible. | | | | hobby you would be prevented from claiming the loss |
| Another important item is to watch what you deduct | | | | on your tax return. So you should have a business plan |
| for auto and truck expenses. For any vehicle you must | | | | and be able to document to the IRS the amount of |
| keep a mileage log. This is true whether your vehicle is | | | | time that you devote to the business activity. |
| leased or owned by you. The reason for this is that | | | | There is nothing like being your own boss and running |
| you must be able to document to the IRS the business | | | | your own business. But unfortunately if you are not |
| usage of your vehicle. Unless you meet certain | | | | incorporated and file a Schedule C, you are likely to be |
| circumstances, you should never claim 100% business | | | | picked for an IRS audit and you must be prepared. |
| usage of your vehicle. | | | | |