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Sole proprietorships are now officially on the IRS’s radar, because auditors know from experience that some self-employed individuals claim excessive write-offs and don’t report all their income.

Tempting targets include proprietors reporting at least $100,000 of gross receipts on Schedule C, as well as cash-intensive small firms. Big write-offs for meals, transportation and travel are suspect and open for exam. Especially since meals continue to be a hot topic.

Also on IRS’s radar are sole proprietors who claim 100% business use of a vehicle. And for post-2017 returns, it’s a sure bet that auditors will check that businesses aren’t deducting entertainment expenses. Which are no longer deductible with the latest tax reform.

Other triggers are those who report substantial losses or little to no adjusted gross income. Taxpayers with multiple years of Schedule C losses who also have income from wages or other sources are a valuable audit target for agency examiners. The Revenue Service’s antennas go up even higher for people who attach Schedule C with big losses from ventures that look like hobbies, or from real estate activities. Large losses reported on Schedule E or from asset dispositions are getting additional scrutiny, as well.

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