The "Audit Team" of the Internal Revenue Service has a slogan:   "We've got what it takes, to take what you've got".  They won't admit this is their slogan, but a trusted source tells me it is.  At the end of this post you can read my audit story and how it has changed me.

 I was inspired by the blog post from Gail MacMillan about the "$25 gift limit" for tax purposes.  Made me think about my aggressive tax tactics and the fact that I love my accountant.  I hired this guy many years ago when he made a comment to me when we first met.  I said, "I don't want to be too aggressive with deductions.  I don't want to be audited."  He replied, "Audited?  Audited? !@#$ the IRS!!!"    I hired him on the spot.

So I thought I would give a few tips and welcome everyone to share some of their own.

1. Gifts--who says it has to be for a closing?  I give "just for the heck of it" gifts all the time to "my advocates"--people who I know go out of there way to refer me.  I like gift cards in denominations ranging from $5 to $25.  They are easy to account for because you get a receipt.  When it comes to closings . . here is the gray area . . . $25 per customer per closing.  Some closings have 4 customers or more(husband/wife sellers, husband/wife buyers).
2. Contract labor:  I go out of my way to write checks to people no matter what.  Never for more than a few hundred dollars.  (think about what I am saying here)
3. Transactional costs:  Back to closing gifts.  There are limits on gifts but if you want to buy that Home Warranty or need to kick in a couple hundred into the transaction because it "makes the deal", I deduct a whole category of expenses like this every year.  I bet your client will be real happy if you offered to pay for the appraisal or the survey in lieu of a gift.
4. Meals:  Why eat alone?  Get belly to belly and let those referrals regurgitate.  You don't need to have a receipt to get a deduction.  The IRS requires you to just keep note of when, where, who, and why to have a business meal.  Don't forget the Dutch Treat rule:  If you split the bill with a friend who refers you business and you normally bag your lunch at a cost of $1.50, then your $11.50 expense is now $10.  So 1/2 of $10 is a $5 deduction (business meals are 50% deductible).
5. Children:  Who says you can't have your own little sweatshop?  Pay your children to do actual work like licking stamps, working the night shift cold calling, passing out your business card outside of funeral homes, etc..  The limit you can pay tax free is around $5,000 per child that is an age competent to perform the tasks.  Pay them consistently and what you would pay someone else (min. wage or more), keep records, and issue them a W-2 each year.  You won't have to withhold taxes or and they don't pay taxes as long as you are not a corporation, they are under 18, and you pay them under the maximum limit amount.  You get a deduction and they get money to learn how to manage.  They can buy there own clothes, there own video games, school supplies, car, and even college.
6. Health Insurance:  Besides regular health insurance deductions, one most self-employed people miss is the "coordinated medical" premium you pay on your auto insurance.  This is a medical insurance premium.  This will vary by insurance company and your State.  In my case, I have 3 cars, a motorcycle, and a boat.  The coordinated medical premium on all 5 add up to about $430 per year.  It's not much, but it'll save you $50-$125 in taxes depending up your situation. 

I was audited for tax year 2005.  But not for all the "unique" things I deducted.  It was for mileage.  All I can say is you must keep a mileage log if you are going to use the mileage method, as opposed to actual cost method.  The IRS knows our industry and they know it normal for a real estate agent to drive 20,000-35,000 miles a year.  I thought it was impossible to keep written records.  What a hassle.  Who has time?  Now what I do, and it takes just a minute, I keep a date book on my night stand.  Since my wife just can't keep her hands off me, she just has to wait a few more minutes until I go over my day, and write down all the places I went and approximately the distances.  Your first and last appointments of the day are considered commuting miles and not business miles.

So what is your "unique", legal business expense, deduction tip, or IRS story?  Remember, they don't put people in jail for aggresive deductions.  The worst that could happen is you don't get the deduction and have to pay the tax/penalty.   Internet is free in jail, so don't worry.   Always check with a tax professional since I am not one.