IRS warning...I'm being audited

[racingpinarello]

Hello all,

Well my weekend was ruined by the IRS notice that I was picked to be audited. Although I am very conservative in my approach to taxes, it's still unnerving because you don't know how much info they need.

Just a little warning before the tax season starts again, be careful and make sure you discuss your taxes with a tax professional and that you have your backup.

uggghh....I never thought I could be picked out of the crowd.

Loren

[JSPhoto]

Hello all,

Well my weekend was ruined by the IRS notice that I was picked to be audited. Although I am very conservative in my approach to taxes, it's still unnerving because you don't know how much info they need.

Just a little warning before the tax season starts again, be careful and make sure you discuss your taxes with a tax professional and that you have your backup.

uggghh....I never thought I could be picked out of the crowd.

Loren

The IRS is on the warpath this year for some reason. It appears they are holding checks for millions of people due to the increased enforcement. They claim it's easier to hold them and get the audit done before they give the checks than to try and collect later (or so they say).
Now, if the IRS would just nail the guy I'm sueing, as I know his taxes are way out of whack. You know if the guy isn't willing to accept an invoice paid or not they are not claiming their income from that business... ie: he isn't keeping any records. Oh well, I can only hope he gets it.....
Good luck in your audit, I know they are a pain. And they want everything.... invoices, reciepts etc.

JS

[Michael Fanelli]

Hello all,

Well my weekend was ruined by the IRS notice that I was picked to be audited. Although I am very conservative in my approach to taxes, it's still unnerving because you don't know how much info they need.

Just a little warning before the tax season starts again, be careful and make sure you discuss your taxes with a tax professional and that you have your backup.

uggghh....I never thought I could be picked out of the crowd.

Loren

I understand your pain. After dropping my 6-figure job a few years ago to work part time for peanuts, I've been audited twice! Be prepared, these IRS guys are about the dumbest people around. They also have the power to circumvent the legal system to fleece you. My tax rate after the audits, taxes only now, exceeded 50% for about a $20,000 income.

Good luck and start applying for food stamps and a sturdy cardboard box now.

[Photo-John]

Loren-
I'm sorry. That sucks. I've been filing a schedule C (I think) - profit or loss from business form, for years. Have you been doing that? I always report all my income, too. That includes barter. Those of us with full-time jobs and photo businesses are easy targers, I think.

[Peter_AUS]

I worked for the Taxation Department here in Australia for 10 years, did some Auditing and I always tell people that if you have all the receipts and can justify your claims you will never have problems with taxation. It is always the best to be honest, upfront and present everything they need in a clear and helpful way. That way if you did do something wrong they should take into account your willingness to cooperate and make their life easier as well.

In business it is always good to have an accountant that does this all for you because you will very unlikely get caught for fraudulent activity. They handle it and you usually are present just as a spectator or to answer questions that the account isn't able to answer.

It can be quite a painless process, it is the people that don't do the right thing (the little people usually) that get caught, the big people usually get away with everything as they pay enough people to circumvent the laws in business all over the world.

Our richest man in Australia died recently, Kerry Packer, who used to pay personal tax of about 3% a year on his income, everyone else here pays a minimum of 21.5% up to $20,600 above the first $5,600 which is tax free then the rates are 31.5%, 41.5% and 49.5% for those earning over $100,000 a year.

Don't get too concerned about it, unless you made dodgie claims.

[racingpinarello]

Loren-
I'm sorry. That sucks. I've been filing a schedule C (I think) - profit or loss from business form, for years. Have you been doing that? I always report all my income, too. That includes barter. Those of us with full-time jobs and photo businesses are easy targers, I think.

Hi John,

Yes, I have been filing the Form C, and 4692 depreciation . They are looking at my travel, office expense, supplies, and depreciation. Luckily, if I didn't download it from my credit card into my Microsoft Money program I didn't write it off. So I have it all itemitized, but just a little worried about the intrepretation of office expense/supplies vs assets.

We'll see, but hopefully it will work out. Just have to go through the pain of ordering my statements from American Express.

Loren

[another view]

Those of us with full-time jobs and photo businesses are easy targets, I think.

I've heard that before. Our tax advisor told me that it's best not to try to depreciate a whole bunch of equipment if you're not making much money with it, even though it might be possible. That's a red flag - if you're a "real" business you should be fine, but if you're not trying to make money with photography and just trying to get a tax credit on some nice equipment, then the IRS will want to talk to you.

[racingpinarello]

My approach is that all equipment is written off by the amount of the income generated. So if make $10k in income, but I spent $45k in equipment only $10K will be expensed and the amount will be carry over for the next year.

I can see it being a red flag since a lot of people use the office expense area to write down equipment.

I'm a little worried that some of my office supplies may have been equipment in the IRS eyes, but I'm ready to go.

It does take a little wind out of the sails, and I may give up the business if the audit goes bad. I under expense my business, so they should owe me money. We'll see.

Loren

[Asylum Steve]

My approach is that all equipment is written off by the amount of the income generated...

First of all, best of luck with this upcoming close encounter of the worst kind, heh heh. I'm very curious to see how it goes...

I'm no tax expert, but from what I've read on both the photo business side as well as the IRS side of things, they make take "snapshots" of your business at any given time, but in the long run they look at the TREND that your business is taking.

IOW, the amount of deductions (assuming they're legit) you take in any given year, and your profit/loss for any given year are not as important as whether you are following a reasonable business plan, and showing progress towards that plan and profitablity.

So, making mass deductions and losing money for a year or two (I'd guess they have a formula) would be considered pretty kosher if your third year in business showed a profit that you paid tax on.

I would think it's the business that's CONTINUALLY losing money and writing off large purchases that would raise an eyebrow with the IRS...

[adina]

According to my accountant....

Two of the highest targeted small business/self employment jobs are photographer and travel agent. Because the job is so "fun" people with a glorified hobby claim they are a business to get the tax benifits, but never actually get off the ground. According to her, you have a few years to get started, but if they audit you, you have to be able to show that you are moving forward rather than taking advantage.

I save everything. And check with my accountant if I am even a little unsure.

Good luck.

[Asylum Steve]

The county I live in charges a business property tax on all registered businesses. You have to itemize all your equipment and assests each year so they can calculate the tax.

The tax amount is not that much. It's just a royal pain to do the paperwork. But the more I think about it, the more I realize this paper trail could be very useful in the event I ever have to deal with the IRS, as it will match up with my federal tax business deductions and depreciations...

[crotograph]

I was audited after a business partner died, about 18 years ago. Trouble for me was the partner handled the business end and I handled the field end. The IRS was licking its chops. So, I hired a CPA who guided me throught the entire matter and all my anxiety turned out to have been unwarranted.

My advice to you: hire a tax professional, pay him/her the money and let whomever guide you throught the process while you keep your mouth shut, thereby, keeping your foot out of said orofice. I don't care how much or little you make. The IRS is trained to back you into a verbal corner and pounce on your ignorance of the tax law. This is how people get in trouble with the IRS, by using the wrong terms and making verbal fauxpaus even though they may be innocent of purposeful wrong doing.

HIRE A PROFESSIONAL TAX PERSON!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[racingpinarello]

I

HIRE A PROFESSIONAL TAX PERSON!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Today I spoke with my tax professional, and he actually said that I have a refund due to me for the past three years.

He was happy with my records, and found a lot of deductions that I didn't realize that I had. So after paying the $500 fee for him to go over my taxes, do the audit for me, and redo my previous years returns I should get about a $1200 refund.

So I am very happy that I went to a professional, and that I gave power-of-attorney so I don't have to face the auditor myself.

If I can do anything about this ordeal is to have great records, use tax/spreadsheets, Microsoft Money, and the services of a professional you can sleep better at night.

Loren

[crotograph]

Today I spoke with my tax professional, and he actually said that I have a refund due to me for the past three years.



Loren

Wonderful news! I know only to well how it feels. You just made my day, having been through this myself. Now, go out and take some photos of sunrise!!

[freygr]

The IRS is on the warpath this year for some reason. It appears they are holding checks for millions of people due to the increased enforcement. They claim it's easier to hold them and get the audit done before they give the checks than to try and collect later (or so they say).
Now, if the IRS would just nail the guy I'm sueing, as I know his taxes are way out of whack. You know if the guy isn't willing to accept an invoice paid or not they are not claiming their income from that business... ie: he isn't keeping any records. Oh well, I can only hope he gets it.....
Good luck in your audit, I know they are a pain. And they want everything.... invoices, reciepts etc.

JS

Just a note the IRS will pay the informer a percentage of the money collected

GRF

[M_Young]

IRS does audit a percentage of people every year, it means, theoretically, anyone and everyone will be audited about at least 1-2 times during his life.

Don’t worry, the IRS is very friendly now (Many complain had been brought to and got high attention by the Senator and Congressman, therefore, IRS’s attitude is highly concerned). In most cases, IRS simply will review your papers only then close the case even without asking any questions unless there is a big and/or unreasonable track there.

[danag42]

I show a profit in my own records, but my accountant depreciates equipement, so some years I may make money but show a loss because I bought a big-ticket item a year or two before.

On Schedule C they ask for the last year's results and what the difference is. When I started out it took a long time to show a profit (depreciation again) but the fact that the loss was less each year seems to have mollified the IRS. I think that they also look at depreciation, and if you make a profit before depreciation they figure you're legit.

I wish you could just declare a HUGE loss the year you buy the big items, and forget depreciation. Then you'd always show a profit unless you bought something obscenely expensive that year.