Each
year the IRS publishes their activities in a publication called the Data Book.
And each year for the past number of years the number one target of audits are
those tax returns with a Schedule C for small business activity. So how to
prepare yourself for a possible audit? Here are some tips.
- Keep records separate. The quickest way to get a deduction for
your business disallowed is to blend your personal bills with those from
your business. Open a separate checking account and use a separate credit
card for business expenses.
- Keep logs. Keep a logbook for business miles. Keep receipts for
business meetings and meals. Include the date, time, subject, and who was
present at the meeting.
- Ordinary and necessary. Two key words to use to qualify
legitimate, deductible business expenses per the IRS are;
- Ordinary: an expense that is common and accepted in your industry.
- Necessary: an expense that is helpful and appropriate for your
business.
- Business not hobby. A qualified business activity allows for direct
deductibility of appropriate expenses, where-as hobby activity expenses
are only allowed as a miscellaneous itemized deduction subject to passing
a 2% adjusted gross income threshold. There are many facets here, but key
among them is a profit motive and active participation in the activity to
qualify your activity as a business.
Just because the IRS
focuses their audit activities in this area does not mean you should be
reluctant to take appropriate deductions. Just be prepared to defend your
position with excellent records.
No comments:
Post a Comment