How to Avoid a Tax Audit for Sole Proprietorships

IRS has found that taxpayers with Schedule C filers have been both overstating expenses and understating income. Here are some the areas that have been typically sited as overstating expenses, and the IRS has specially targeted these for audits

1. Taxpayer has included personal telephone and cell phone calls on his or her Schedule C.

2. Taxpayer has included personal home and life insurance as part of business insurance expense on his or her Schedule C.

3. Taxpayer has expensed his or her spouses travel expense even though she was not actively involved in the Schedule C business.

4. Taxpayers deducted non-business related expense (personal non-deductible) on his or her Schedule C.

5. Taxpayer’s Schedule C activity looking more like a hobby than a profit activity, that was generating continuous losses for more than 3-5 years with no prospect of generating a profit in the foreseeable.

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