Taking a deduction for a home office may increase your chance of an IRS audit, but if the deduction is worth it go ahead and take it. If the deduction is minimal in tax savings, you may want to reconsider whether taking the deduction is worth targeting you for an audit.
2. Is it really a business deduction?
Before you buy that big screen TV, consider “Will it really serve it’s purpose as a business expense?” It is important that the expenses that you are claiming as business deductions are honest business deductions.
3. Hiring family members
As one who is self employed, you may be inclined to hire family members so that you can get more profit out of your business. This is fine as long as the family members are actually working.
4. Entertainment Deductions
If you are using business expenses to pay for entertainment, make sure that you are discussing business on the outing. It can be easy to slip into the habit of using your business card to pay for a meal or two that should come out of personal expenses, so be careful.
Red flags are not a guarantee that you will be audited, but they do increase your chances of one. Don’t hesitate to claim the deductions that you rightfully deserve. Just make sure that you can back them up with proper documentation if it is necessary. Remember though, that honesty is the best approach to avoiding an IRS audit.