Red Flags for an IRS Audit

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The IRS affords small businesses the opportunity to take advantage of some wonderful tax deductions. However, they are also very, very sneaky. What many landlords and property investors learn the hard way is that claiming these very same deductions can also act as a red flag to the IRS and may even trigger those stomach sinking, pull-out your hair, try and flee the country words, an IRS audit.

Two of the deductions the IRS will scrutinize the most are the home office deduction and the travel and entertainment deduction. These deductions can help significantly reduce your tax burden which is why many people try to take advantage of them.

These are legitimate and allowable deductions as long as you qualify under the IRS's rules for taking them. For example, one of the requirements for taking the home office deduction is, you must use your home office exclusively, regularly and as your principal place of business. In addition, you must follow the IRS's rules for what expenses you can deduct and how to properly deduct them. If you understand the rules and follow them to a "T", you will have nothing to worry about, even if you are audited.

In addition to having a thorough understanding of the above deductions, you should also focus on keeping very detailed records of all your income and expenses so you can back up your claims if an item on your taxes comes into question.