G&G Associates Tax & Financial Consulting
Tax Tip of the Week
Quiz for Schedule C Biz Owners
Imhotep (Wisdom to You) G&G Readers,
I thought you might find this quiz to be useful.
Assume that you are one of the almost 4% who is going to have your Schedule C business expenses audited by the IRS.
You had the misfortune of being chosen through random selection (50% of audits are random selections; the other 50% are based on test scores).
The IRS will almost certainly examine two line-item expenses in your Schedule C.
** Question: What two line-item expenses are most vulnerable to a Schedule C audit?
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The two lines that contain the expenses that the IRS is most likely to audit are
• car and truck expenses on line 9, and
• travel, meals, and entertainment on line 24.
The reason the IRS targets these lines is simple: The law requires specific records for these expenses. If you don't have properly kept records, you get no deductions.
With car and truck expenses, you must have a log that proves your business-mile percentage. Regardless of how you deduct your vehicle, you must have a supporting mileage log. If you use the actual expense method, you need the mileage log. If you use the IRS standard mileage rate, you need the mileage log.
In addition to the mileage log, if you are using the actual expense method, you must have a receipt for any car or truck expense of $75 or more.
For travel and meal expenses during the travel, you need both
• receipts for expenses of $75 or more, and
• entries for each business day saying where you were and listing your business reason(s) for being there that day.
For entertainment, including entertainment involving meals, you need to
• record the name or names of the person(s) you entertained,
• record the business reason for the entertainment,
• record the place and type of entertainment, and
• keep receipts for any entertainment that costs $75 or more.
Regardless of the system you use, make sure that you write down, on a timely basis, the answers to the documentation requirements. You may not record this information later. The law requires timely recording, which the IRS says is any time within one week.
Visit our website for more information and free online webinar classes to help you make sure you are audit proofing your records, or contact us today to set your appointment if you need a “TAX” OR “FINANCIAL” one-on-one consultation.
Until the next time!
Ankh Uja Snb (Life, Strength, & Health),
Asar Gary Gray
Tax & Financial Consultant, RFC
866-361-3872 toll free fax
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