Level 10

Audit trigger

Forum|Forum|3 months ago
March 22, 2026
2 replies
17 views

Schedule C, a general contractor, has classic audit triggers (High COGS, low margins, high meals). TP is 75 and spouse is 65, social security, Medicare, loads of travel to their vacation home. They are living comfortably with nice lifestyles. ADN, they are risking an audit. And it isn't my primary job but I have told them of the "flags" in their returns. That they are living the high life, and wish to "invite" an audit, is an interesting choice.

Tax Talk

sjrcpa

Level 15

Is there a question ?

Have you explained the business meals rules to him? Our engagement letter, which clients must sign, states they understand they must have documentation for business meals, etc. and they are responsible for what's on the return.

And to paraphrase Bob, when is the last time you saw an audit? Although of course we do not take return positions based on chance of audit.

The more I know the more I don’t know.

S

strongsilenceAuthor

Level 10

No question provided but lots of advice given!

I'm just wondering why people in their later stages, living a good live full of grandkids and relaxation and sun and vacations, would want the <1 % of examinations and associated penalties. Maybe that is what makes life interesting to them.

T

TaxGuyBill

Level 15

@strongsilence wrote:

and associated penalties

Penalties? Are you assuming he does not have the proper record-keeping or is doing something fraudulent?

I think it is funny how many people are afraid of audits. The purpose of an audit is to make sure the taxpayer did things correctly. With the proper record-keeping, audits are usually not a big deal.

BobKamman

Level 15

Primary trigger here is filing Schedule C, when he should have turned it into an entity filing 1120-S long ago. No one ever suggested that?

Show him the very narrow strip at the bottom of this chart, and tell him that's where his audit likelihood can be found. The most important number is gross receipt, but ZIP Code is important too. How remote is the vacation home?

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