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IRS Individual Tax Examinations - self employed

 

We recently handled two individual tax audits. 

The first could have been a disaster but wasn’t because the client/taxpayer had documentation. 

The second should not have been a disaster but was because the client/taxpayer did not have documentation. 

Both of these clients are self-employed.  Therefore the focus of the audits was on the Schedule C.

All deductions must be substantiated by cancelled checks and/or paid bills.

Rent should be supported by a lease. 

Business use of the auto and meals and entertainment should be documented in a diary indicating the number of business miles driven, business purpose of the travel/meal, whom you met with, dollar amount of expenses paid out of pocket, (excluding gas). 

In one case the client wrote that they commuted to work but claimed 95% business use.  Business use of the auto was reduced to 67% due to this contradiction. 

 

 

 

Take these real life experiences into consideration when you prepare the information for preparation of your 2013 tax return.

 

Tax information - paperless reporting
Tax Reporting Documents
 
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