I hate picking out finishes to be honest, im partially color blind.

Payroll for the year (it is normally subject to audit at the end of the policy term)You can normally add coverage for your tools and equipment.Most of our carriers have a minimum annual premium in the $500 range.

The fund covers all operational expenses (legal, compliance, audit, etc). 

You are playing with fire, its illegal, a risk, and chances are you won't get audited, but if you do, those expenses will be disallowed and you'll likely be fined.

@Chris Purcell, Yep that's true, but, a schedule E with income on it will be questioned in an audit situation when there has also been a 121 exemption on the same address .

I know at least one of the box tax firms used to offer “audit insurances’ where they would cover any penalties/fees or extra taxes owed if you got audited.

I'm not a CPA but do have an S-Corp as well and that is why I pay my CPA to make all these decisions for me, I would just make sure your CPA has audit protection including with their services as an extra layer of comfort

I also look at it as to the amounts in the big picture, while not trying to evade any tax, but avoiding tax, if the amounts are disallowed, that arisies from an audit, if there is an audit, then it will be a mistake and tax may be due as well as any penalty.

And Thanks @Bill Gulley and @Jay Hinrichs Bills comment about REGs auditing made me think about my process.

Kristine Marie PoeI'd say you're right, except that closed transactions show up in audits after closing, it's not the closing agent responsible for such matters but the selling broker.......in their absence, the seller.