Few words in the English language set off alarm bells like the word “audit.” The good news is there are ways to reduce the likelihood the Internal Revenue Service will tag you for an audit. Nevertheless, if a letter from the IRS does appear in your mailbox, don’t panic.
Statistically, the IRS only audits about one percent of taxpayers with incomes under $200,000, according to the tax experts at the Oklahoma Society of Certified Public Accountants. There are red flags that can raise the likelihood you’ll be audited, however.
Here is another helpful tip to protect yourself against an audit:
Do understand the home office deduction. If you qualify for a home office deduction, you can deduct a percentage of your rent, real estate taxes, utilities, phone bills, insurance and other costs that are properly allocated to the home office. However, you must use the space exclusively and regularly as your principal place of business. “Exclusive use” means that a specific area of the home is used only for trade or business, not also for the family to watch TV at night.