Monday, April 13, 2009

Small Business Audit Triggers Part 3

7. Taking the home office deduction. If you work at home, remember you need a section of your house exclusively used for business to qualify for a home office deduction. The IRS particularly likes to challenge this. I generally advise that this deduction will automatically cause an audit. According to the IRS:

In order to claim a business deduction, you must use part of your home for one of the following two reasons:

  • Exclusively and regularly as either: your principal place of business, or as a place to meet or deal with patients, clients or customers in the normal course of your business. Where there is a separate structure not attached to your home, the regular and exclusive use does not need to be your principal place of business as long as the use is in connection with your trade or business.

  • On a regular basis for certain storage use -- such as storing inventory or product samples -- as rental property, or as a home daycare facility.
Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

8. Using your car for business. Like entertaining, this is another area the IRS thinks has the possibility of being misused. You're less likely to be audited if you have a separate personal car. But you've got to see customers face-to-face to keep them loyal. And this year, the mileage rate deduction was increased: 50.5 cents per mile from 1/1/08-6/30/08 and 58.5 cents the rest of the year.

9. File at the last minute. Since fewer returns are filed early, you'll have a lower chance of being audited if you file closer to deadline. So thumbs up on your procrastination!

10. Use of your cell phone for business. If you use a cell phone as part of your business, this could be a big deduction for you. So don't make the mistake of mixing business with pleasure by sneaking too many personal calls onto your cell phone bill. You need to keep good records and keep their actual telephone bill so they can demonstrate that a majority of the calls were business calls. Take a look at your cell-phone bill to make sure you receive an itemized report. Because cell phones are considered listed property, you need to keep detailed records of their use.

No comments: