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New York, NY—Small and medium-sized businesses are far more likely to be audited by the Internal Revenue Service than large corporations, according to this report from Syracuse University’s Transactional Records Access Clearinghouse. In it, the group reports that since 2005, the IRS has cut back by one-third the amount of hours it spends poring over the books of large corporations (assets of $250 million or more.) Additionally, the number of audits on large corporate tax returns has fallen 22% since 2005.

At the same time, IRS hours spend on audits of small businesses (assets less than $10 million) jumped 30% since 2005, and jumped 13% for medium businesses (assets between $10 and $250 million). And hours devoted to auditing very small businesses—assets below $5 million—grew 34% in that period. Meanwhile, says the SU report, the number of misreported dollars per auditor hour is eight times higher for the giants ($9,354) than the small or midsize businesses $1,025).

According to this small business tax white paper from Smartbrief.com, the average small business spends up to 255 hours and $2.3 million on federal tax compliance.

With the deadline for filing 2011 taxes just days away, Smartbrief’s white paper reminds small business owners of a variety of deductions that often get overlooked. These include:

Home office. This depends on the percentage of your home you use for business. Measure the area (literally), and divide by the total square footage of your home. This will yield the percentage of home-related costs such as mortgage, insurance, utilities, etc., that you can deduct as a business expense.

Insurance. Self-employed entrepreneurs can deduct 100% of their medical, dental, and long-term care insurance, as long as they pay for it themselves and the total cost of the premiums doesn’t exceed the business’s net profits.

Professional services. Your accountant and attorney are deductible for work relating to the business, as long as it’s not part of an acquisition. Then it’s added to the cost basis of the business whose assets you’re acquiring.

Auto expenses. You can use the standard IRS mileage formula (recalculated approximately every six months) or keep receipts and deduct actual expenses for gas, insurance, repairs, etc.

Travel and entertainment: Keep detailed records in case you’re called upon to prove why these were necessary for your business. Travel must keep you away from your business substantially longer than a day’s work hours. Lodging is deductible if you can prove you need rest to meet the demands of your business on the trip, but business meals are only 50% deductible.

What’s not deductible: athletic, dinner, and social clubs, political donations or lobbying expenses.

New for 2011: Small businesses that pay at least half of their employees’ health insurance coverage can qualify for a credit of up to 35% of premiums paid. That amount is set to increase in 2014. But determining whether the company is eligible gets tricky, so click here for an online guide.

Beware! The IRS now gets more information on gross credit and debit card receipts from credit card processing companies and banks. Business owners should be very careful that the gross receipts they report from credit, debit, and gift cards track closely with the IRS-held data.

For detailed information, click here to download the free SmartBrief white paper, “What Every Small Business Owner Needs To Know For Tax Season.”

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