As a tax law firm we deal with IRS and Franchise Tax Board audits on a daily basis. As we review tax returns and prepare our clients for the audit process, one question comes to mind during many of these interviews: “What was their tax attorney thinking?” Deduct With Care: These Write-Offs Could Lead to Audits
We’ve put together a short list of areas that tend to trigger closer examination from federal and state auditors. Remember that this is informational in nature and not meant as legal advice. Avoiding these areas doesn’t mean you’ll never get audited but it can help reduce your chances.
Tax Write-Off: Travel Expenses
Here’s one of those grey areas that’s difficult to decide where to draw the line. Can you write off tickets to a Las Vegas show if you’re entertaining a client?
Yes, as long as you can justify it as a business expense. What if you bring your husband or wife along? If they’re an employee or business partner and involved in you meetings then his or her travel expenses and 50% of his and her meals are deductible.
Remember: Grab an envelope and keep all your receipts along with the name and date of the trip. The more accurate your records the better.
Tax Write-Off: Cell Phone Bill
Cell phone bills can be a big write-off if, like many businesses, you’re becoming more mobile. Just don’t mix business with pleasure and try to write off the whole bill. Sneaking in a few personal calls is one thing. Sneaking in a few business calls with a lot of personal calls is quite different.
Remember: Most cell phone bills are itemized. Keep a copy and highlight business calls. The more accurate your records, the better.
Tax Write-Off: Home Office
Back in the 1980’s and 90’s, home office deductions used to be a giant red flag for the IRS. But in today’s economy with so many home-based employees and businesses, its become an accepted deduction. Just remember, anything out of the ordinary with your home office deductions could bring added scrutiny from auditors. Trying to claim ¾’s of your home as your “home office” will still raise suspicions. Claiming 10% or less of your home as dedicated office space, much less so.
The best way to determine your home office space is to have a certified contractor or home inspector measure the actual square footage of your dedicated office space and as added insurance, put their findings in a letter. Once you figure out the percentage of your home office compared to your overall home, you can go back and calculate utility bills, internet, etc. and figure out the amount that you can deduct for running a business.
Remember: Don’t measure the space yourself. You’ll almost always under-measure. Getting it done professionally may cost you now but will save you thousands of dollars through proper tax write-offs. Deduct With Care: These Write-Offs Could Lead to Audits.
In Part-Two of this series we’ll look at other areas that can lead to heightened examination of your tax returns-areas like computers, personal expenses and even maid services.
And don’t forget, if you or your business have already been notified of an audit, contact or call RJS LAW today at (619) 595-1655. Our tax law experts will analyze your case, look at your returns and help you through the process. You have the right to legal representation and we’ve helped our clients save thousands of dollars in the process.