- This topic is empty.
-
Posts
-
I get nervous about this every year at tax time. I try to document all my expenses the best I can but sometimes I am unsure how to file certain types of expenses so I just use my best guess. I think I should hire an accountant to start doing this for me.
I think so too. When it comes to taxes, cross your Ts and dot your Is. I was audited over 20 years ago, and because of bad documentation I ended up paying money I really didn’t owe and could ill afford. It plunged me into poverty for two years. Ramen noodles in a cup, franks, beans and apples from the apple tree get old quickly.
I learned my lesson!
Documentation is key. I went thru an audit this year with a client in the gambling business. Most of his transactions were in cash and records were not kept for obvious reasons. He is an honest guy – the only kind of client I accept. He reported all of his income. The IRS accepted his income number and only gave him 25% of his expenses, even for those for which he had proof – like his checks to me for preparing his taxes.
On appeal, they showed previous tax cases that had been ruled in their favor and said “take us to court”. Going to tax court is not cheap and with the likely outcome not being much better, my client was forced to take their offer. Had he been able to document his cash outlays, he would probably received a different result as these records were asked for and not delivered. We might have been able to settle his case more favorably without going to the appeal level.
Bottom line. Document your expenses as you incur them and keep good records.
Steve S is a good guy, and I can vouch for his tax related advice. Good to see you posting here, Steve.
Randy:
Thanks for the plug. My guess in now lunch is on me next time?
BallsUp:
Yes we are all Americans. This thread applies to US citizens and others doing business in the US. My apologies for not making that clear.
@Steve S 149613 wrote:
BallsUp:
Yes we are all Americans. This thread applies to US citizens and others doing business in the US. My apologies for not making that clear.
Oh dont apologise hun
Just did my first tax return this year – (only started my web page September 2006) and got a rebate , dreading next years tho lolJust a few words of advise:
1) in 1993 I got audited and ended up owing a few thousand. At that time I was paying a tax man $600 to do my taxes.
2) I read that computer tax returns were not audited that much (I’ve read that several times over the years) and since that time I’ve used Turbo Tax. This year’s tax return will be done once again by Turbo Tax. Cost at Office Depot is $77+
It’s worth it. I keep my books update on a daily basis with QuickBooks which can be transfered to Turbo Tax at the end of the year. I own several rentals.
I get my tax returns done in 20 minutes and my tax refund in February.bleuze:
I don’t know anything about your personal situation, so I cannot comment on it. However it has been my personal experience that in most cases in which an audit results in additional taxes assessed, it is usually not caused by an incorrect application of the tax law by a competent CPA. It most often occurs because:
1. Insufficient documentation of expenses.
2. Failure to disclose all income. Many times clients “forget” to tell me about that jackpot they hit in Vegas and the 1099 the casino gave them, for example.
3. Failure on the part of the preparer to fully understand the client and ask enough questions.
4. Failure on the part of the client to provide complete and truthful answers to preparers questions.
5. They client represented themselves in the audit.
Be wary of those who claim to know how the IRS selects returns for audit. I have been to many seminars and no one really knows. However, having said that, computer programs remove math errors. Math errors in a return are going to attract more scrutiny.
TurboTax is a good program. And, for most people, using it is just fine. I used to use it myself (the professional version). It seems every year I have to buy the individual version as someone wants me to review what they have typed into TurbTax. However, there a few instances in which having a CPA knowledgeable in your industry can provide a better result than an inexpensive generic tax program.
I prepare a lot of returns for landlords, house flippers and rehabbers. Having worked in the real estate industry for 11 years, including 6 as the CFO/Controller of a property management company before I opened my own practice, I am fairly certain that a competent CPA with a good knowledge of real estate would have been able to provide you a better result tax wise as opposed to TurboTax.
Last, unless you like the idea of forced savings, and don’t get me wrong a lot of people like getting their refunds, the goal I shoot for when planning for clients is to owe very little or get back very little. That way, you have the use of your money all year long instead of it being in the hands of the govt. They are not going to pay you interest unless they make a mistake in processing your return.
Steve,
You’re correct in many respects. However, I’m going to say the following to US tax payors:
1) generally when they audit one year, they audit 2 to 3 years
2) generally they audit the past returns until they get to the present tax returns
3) this is not legal, but neither is online gambling funding or site: remember, the government is out to put you out of business and if you like to give the government money that they are NOT entitled to (read your affilate/gambling terms) and help them put you out of business, then by all means give them your affilate/gambling money!Richard:
Are you a CPA or Tax Attorney? Most audits I have been involved in have not spread beyond one year. Some have, to be sure. However, it has almost always been the result of bad recordkeeping.
There are instances where it is legal for the IRS to extend the audit. It is up to the taxpayer or his/her representative to make sure that the service follows the rules.
From what basis are you making these claims?
Steve,
That’s not what I meant to say. I do not know anyone who has been audited for several years at one time. They usually, at least in the past,
audit you for 1 year, and then the next year they audit you again, etc.
Example:
taxes get audited for 2001 in 2004
taxes get audited for 2002 in 2005
taxes get audited for 2003 in 2006
etc.I got audited for several years at one time. 3 years to be exact. They ended up only finding the missing documentation in the last year and that one year is what did me in. But once they had seen that, they did the two preceeding years for good measure. Wasted their time though.
@Steve S 149651 wrote:
For those of you who operate as corporations, zero salaries for owners/executives is an audit red flag for S-Corporations.
@Steve S 149651 wrote:
However, there a few instances in which having a CPA knowledgeable in your industry can provide a better result than an inexpensive generic tax program.
I am fairly certain that a competent CPA with a good knowledge of real estate would have been able to provide you a better result tax wise as opposed to TurboTax.
the goal I shoot for when planning for clients is to owe very little or get back very little.
Very good advice and valid points. Hiring a CPA to create my LLC and do my taxes was the best thing I’ve ever done for my business. The $500 to $700 cost is well worth the peace of mind.
There are so many rules on how much you can deduct, what percentage is allowed to be deducted and so much other stuff involved to where I would not even attempt to do my own taxes.
I try to save all receipts in a box and pay for everything with the AmEx card or the business visa in order to easily provide all necessary information so come tax time I can either put it in excel or pay extra and just dump it all on him to do. I also have to do 1098’s for contractors so I’d rather not have to worry about that part either.
I have a friend in the insurance industry that was recently audited and had to pay back over 10k in taxes and his advise to me was to make sure to never tangle with the IRS because they are nothing nice.
