'Whenever you have a choice between putting a particular expense in a general category or specifically listing it under ' other expenses,' always favor explicitly listing it,' Kaplan advises. Here are examples of expenses that you can itemize: Being ambiguous about business expenses might cause the IRS to think there's an issue or that you're intentionally misreporting your earnings. Itemizing your business expenses shows transparency and prevents the IRS from questioning the information you provide. For example, writing off rent, car expenses, mileage, and technology can save you money, but they can also trigger an IRS audit if the numbers amount to more than you earned. While you must always report 100% of your income, you can avoid reporting excessive losses by reducing the number of deductions you claim.

He adds, “You are required to report all of your income, but you don't have to report all of your expenses, so leave out a few expenses if that results in a small net profit for the year.' 'When the IRS sees a net business loss, it is practically begging to be audited,' says Steven Jon Kaplan, CEO of True Contrarian Investments, LLC. The IRS may see the loss as an indicator of underreported income, prompting them to take a closer look at your return. Reporting a net annual loss-especially a small loss-can put you on the IRS's radar. Be careful about reporting all of your expenses Avoid careless mistakes-like math errors, leaving questions blank, or not signing your tax return-can trigger an audit.įile on time and do it right the first time.ġ.Learn best practices to avoid an audit with these 11 tips.

The numbers were only slightly higher for S corporations but still less than 0.5%.īut in late 2020, the IRS announced it would add auditors to allow the agency to increase its audits by 50%. Bloomberg cites IRS data that only 140 small business returns-out of 4 million- filed in 2018 were audited. Until recently, the odds of having your small business tax return audited were low. There's no guaranteed way to avoid an audit, but there are precautions you can take to keep your business from raising red flags.

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