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@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.
How much do you guys write off that have been audited? I write off less than 5% of my earnings as expenses all on credit card or paypal, documented with dates and amounts in excel. how much documentation do they require?
I have never been audited but there have been times where I wrote off more than 50% of my earnings as expenses. That was when I was doing a lot of PPC marketing.
I don’t think you really have to worry about that too much. There are many businesses that lose money and therefore write off more than 100% of earnings as expenses. Just make sure you can prove all your expenses.
For those of you who operate as corporations, zero salaries for owners/executives is an audit red flag for S-Corporations. For C-Corporations salaries that vary annually in order to consume all of the corporate profits is a red flag as well.
This concerns me ,My gambling income goes in a corporation and we are accumulating assets as we already make $xxx,xxx each on our day jobs so really dont need any more money.Our plan has been to retire when the business has fixed assets that we feel is enough to sustain our lifestyle then draw incomes from it.We are canadian does this also send the red flags?
I am worried about being audited after reading this post.
What is the audit procedure like?
Do you go to an IRS office with a box of all your documentation, or does someone come to your home or office?
Do they check every little thing, how long does it take? :confused:
GamTrak:
I am not a big fan of the LLC. The primary reason is that all income is by default self-employment income and as such is subject to self-employment taxes. However, this is not really much of an issue unless you have taxable income from it over $50K. If you wish to discuss it further, pm me. Otherwise it is a bit much for a forum.
Secondly, if you are a single member LLC, most times you are filing a Schedule C as a disregarded entity on your 1040 and face the same increased scrutiny as a sole proprietorship. And an examination of the LLC can quickly become an audit of your whole return. This is much less likely if you operate as a corporation.
allfreechips:
Rob472 is correct. Deduct all of you legitimate expenses regardless of the percentage of your income. Every year many business report losses for various legitimate reasons. Just make sure you can document your expenses.
As far as documentation goes; keep copies of canceled checks, bank statements, credit card receipts and statements for starters. Try to avoid paying cash where possible as the service tends to be suspicious of cash transactions. If you has to contribute money to your business make sure that you keep documentation of it so that you can prove it is not income.
casinobonusguy:
I cannot help you with regard to Canadian tax law. You will have to find a canuck accountant to help you with that one. I believe they are called Chartered Accountants up there? I used to know a couple in Montreal and Toronto. I have not spoken to them in years now. If you need someone, I could try to look them up.
Hi Steve,
Thanks for the information. I will PM you once I return from vacation this week and speak with my CPA about some of the things brought up in this thread. Especially regarding the quote below.
However, this is not really much of an issue unless you have taxable income from it over $50K.
I am currently the only employee of the business, but I’d like to know if converting my staff to employees would be of any tax benefit or not.
ace$spade:
It was not my intention to worry anyone. I was just passing along information I thought might be useful to all of you. In reality a very small percentage of returns are examined every year. Just make sure you keep proper records and you will be fine even if you are selected.
IRS audits can range from letter or mail audits where you will receive a letter asking for proof of something to an in depth look at your return. You have the right to be represented by a professional and as such may never actually meet an IRS representative. You can also request the the examination take place at the office of your tax professional or the local IRS office and not your home or your place of business.
We, CPA’s, never want our clients to meet the IRS. Most clients are very nervous when the meet with the IRS and volunteer to much information. They are also most often not aware of when the IRS does not have the right to know something. Therefore they never say no. One seminar I went to ever suggested that revenue officers had been trained to use long periods of silence in taxpayer interviews as a way to keep them talking in order to get more information out of taxpayers.
If you receive a notice that one of your returns has been selected for examination, the first thing I would do is to contact a tax pro in your area. You can probably ask your friends and/or co-workers and find a good one. If one of my returns was selected for examination and the audit could not be resolved by simply providing proof, I would ask one of my fellow CPA friends to represent me.
If I do alot of my transactions via PayPal, does this provide enough documentation if I just print out the records they show on the site?
Thanks.
SmackDog:
That would certainly be a good start. However that is not the only piece of documentation you will need. But, it is independent third party verification of a number of your transactions and that is a good thing.
Folks, I don’t mind answering general questions. But for questions relative to individual situations, you need to pm or email me. I am going to need more information. There is a reason a lot of us will not give advice with out the usual disclaimers such as consult your tax professional before adopting anything I recommend here, I can’t be held responsible for what you do with what I say here as it is not individual advice directed towards you, blah, blah, blah.
Someone will misinterpret what I say and it will cost them money and they will want a piece of me via litigation. Nobody wants that. I am willing to help you all. I just cannot discuss individual situations in a forum environment. I hope you all understand.
Steve,
Thanks for all your input, I’m sure everyone appreciates it. I am wondering if in your opinion places like H&R Block are good places to have taxes prepared? Or am I better off finding someone private?
Thanks.
I have a local CPA and I have to say with this, day job and my wife as a realtor its a grand mess of papers to look at and the CPA is the single best investment I have made in years.. If you dont have one your an idiot is what I was told years ago, and of course I believe that now lol.
I have a CPA and hirred her the day we incorporated the company ,we were established 16 months ago and i have not taken any income nor has any other shareholder.The business has its own paypal account that we use for the design,links and other expenses.Smackdog as long as the paypal is for business only you can use the paypal receipts for the tax preparations but you need to have all details of the transaction.
I talked to Linda last night and she said that sometimes owners take no income but write off their mortgages ,car payments ,travel bills , pricy meals etc which then puts them in the hot seat.In our case we wrote off only $2900 in computers ,domain and website purchases ,I have yet to cahrge my first meal to my business after almost 2 years lol.BTW in canada the tax rate is only 18% on incorporated business ,11% if you have under $400,000 in revenue.what is the tax rate in your country-anyone can answer?
Thanks steve for posting such an important topic!
