Are you prepared for the IRS to scrutinize of the followings?
Business meals, travel and entertainment – to qualify for such deductions you must document the amount, location, people attending, business purpose and nature of the discussion or meeting.
Business use of a vehicle – you must list what percentage of the vehicle use was for business during the year; keep detailed dates, business purpose and mileage for every trip (100% use usually doesn’t go over well).
Charitable deductions – the IRS knows the average donation at your income level. Non-cash donations over $500 have a specific tax form that needs to be filed, and any donation of property needs to be appraised. Keep your supporting documents, including receipts for cash and property contributions.
Additionally, more recently the IRS is shifting its focus and resources from auditing corporations to auditing S corporations, partnerships, limited liability companies and sole proprietorships. Moreover, cash intensive businesses are even a greater target for the IRS auditors. The IRS has created a special guide for their agents to utilize when auditing primarily cash businesses.
As always, to avoid trouble, keep detailed records and accurately report all taxable income, expenses and losses. Negligent record keeping will get you in trouble.