Does an 18 grand total deduction on my Schedule C pose a red flag for an IRS audit for someone with my income and being self employed?
Q.I am a new sole proprietor of a business. This year I had expenses of $18,010 on a gross income of 84,180. My question is this: Does an 18 grand total deduction on my Schedule C pose a red flag for an IRS audit for someone with my income and being self employed? Like I said, I am a new sole person in my business and I have heard that the IRS scrutinizes the self employed and I just wanted to know if there are red flag limits for audits for us self employed. I know the standard answer of "If you spent that much and can account for it, then no problem". But if this is going to trigger a red flag, then next year I am not going to spend as much on my business. Thank you in advance for your answer.
A.It would all depend upon the kind of business you are in. If it were a conveinence store the cost of merchandise sold would normally be 65% of your receipts. Rent could easily be $18,000 alone. Now if you are a commissioned merchant who sells over the phone from a home office the $18,000 could be excessive. It all depends. An experienced tax advisor could help you sleep well. I have been running a seasonal (I am a 1099 Service Bureau) sole prop business since 1988, with wildly varying expenses/gross income ratios. The only letter I have ever received from the IRS was one congratulating me for a perfect filing record (no errors).
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