I finally had to audit the financials because I could not believe the amount of repairs that were done on my properties behalf. 

@Katherine Robbins - You set your company up correctly for your activities, but you need to be taking paychecks.One of the key things the IRS looks for to open an audit is the lack of reasonable compensation of officers in an S Corp. 

I'd expect that you may run into only one issue with the 10k penalty exemption and that is the potential for getting audited; however, there is nothing in the rules to prevent it other than if you both live in the same new residence at any time.

I personally love representing TT clients in audits.

http://www.bls.gov/ooh/office-and-administrative-support/bookkeeping-accounting-and-auditing-clerks.htm

The IRS does not audit those using Independent contractors any more than they do employees.

Given that a $25K education expense is something that is probably more likely to get scrutinized than your typical expense -- and given that your CPA isn't the one who will be audited -- it's worth keeping in mind. 

The IRS will appreciate it when they audit you.

I have clients worldwide that I assist with bookkeeping, audit representation and tax preparation.http://blauco.com/

And what supporting documentation would I need to provide to the IRS if i am audited?