Schedule C Clients and How Then Can Beat An Audit

IRS statistics show that approximately 4% of all returns including schedule C income eventually get audited.  Half of these returns are audited due to a random selection and the other half are chosen based upon a scoring assessment based upon IRS standardization charts for different acceptable business expenses.  The IRS released that the most common two items that are reviewed in a schedule C audit are line 9 (vehicle expenses) and line 24 (travel, meals, and entertainment). The logic behind these fields being chosen over others is the record keeping requirements for these expenses. Without proper documentation, these deductions are easily disallowed for schedule C clients.

To Prove Vehicle Expenses:

• Must Have a Mileage Log
• If using actual expenses, you must have receipts for any expense over $75

To Prove Meals and Entertainment Expenses:

• receipts for expenses at or greater than $75
• notes for each day you were traveling for business purposes and what those purposes were
• for entertainment expenses you must indicate: Who you were entertaining, for what reason, type and place of the entertainment, and of course keep the receipts for anything over $75.

Be aware, the IRS requires timely reporting of these requirements. To beat an audit, all of these record requirements are required to be documented within 1 week of actually happening.