We know that business owners employing and providing benefits to family members will receive a great deal of scrutiny in the event of an audit. The easiest way for the IRS to prevail is to challenge the legitimacy of the employer-employee relationship.
The following is the best way to "audit proof" your return.
Is the compensation payed to the family member:
Reasonable based on fair market value?
Is there a written check or documentations?
For medical expense deducted in the year reimbursed ?
Not deposited in the business checking account?
Is there documentation of the benefit plan such as:
Written employee benefit pan?
Employee time records?
Employment contracts?
Job description?
Filed payroll tax returns?
Having the medical insurance plan in the name of the employee?
Premiums paid by the business or employee not the owner?
Other items:
Is money paid by the employee spouse for medical expenses?
Is money paid to the spouse as a reimbursement or directly?
Is the insurance in the employee spouse's name?
