The IRS announced eight areas that it will focus on for audits of small businesses. The IRS said it is increasingly its oversight of small businesses. They believe that the small business underreporting is responsible for 84% of the $450 billion tax gap.

Below are eight areas the IRS is targeting:

1. Fringe benefits The IRS audits indicate that employers are not reporting employee fringe benefits like personal use of company vehicles on Forms 1099 or W-2.

 » Read more about: Eight Focused Audit Areas on Small Businesses by the IRS  »

Business activities should be kept separate from personal activities. It is preferable to have the entity pay for all of its business expenses form the entity’s checking account and to have one credit card that is used solely for business expenses.

It is not uncommon that the partners/members need to pay for business expenses out of their own pocket. According to the Tax Court, unless an agreement between a partnership and a partner states otherwise,

 » Read more about: Out-of-Pocket Business Expenses on Behalf of Parntership  »