Small-business advice: Will claiming tax deductions trigger an audit?

Dear Karen: Will I be audited if I claim tax deductions for my new business?

Answer: Audit risk rises when taxpayers file a Schedule C, which reports business income and expenses, along with their Form 1040, according to IRS statistics.

It’s unlikely that simply including a Schedule C will trigger an audit, however. Audit risk for Schedule C returns was 1.9% when income was less than $100,000 but 4.2% for income between $100,000 and $200,000, IRS data for 2009 show.

If you are serious about your business, file proper tax forms and establish separate bank accounts. If you are moonlighting as an entrepreneur and expect little extra income, you could forgo deductions and report your business revenues as “miscellaneous” income on line 21 of your 1040, said Gregg Wind, an accountant with Wind & Stern in Los Angeles.

Transferring a family business

Dear Karen: How do I transition my business to my family?

Answer: Evaluate your assets and create a business succession plan with a qualified advisor. This year and next, you can take advantage of gift tax-free transfers established by December’s tax compromise bill, said Dan Prisciotta, an accountant with Equity Strategies Group of Rochelle Park, N.J.

Through tax year 2012, couples may transfer up to $10 million in private company stock completely free of gift taxes. “Add to this the availability of valuation discounts and low interest rates, and you have a unique planning opportunity,” Prisciotta said.

Small-business questions? E-mail Karen at smallbiz@latimes.com.