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By month:May 2007

Putting the IRS Audit Manual’s Home-Office Section to Work for You

The IRS puts out its audit manual every year. It not only contains information on how to audit, but also gives information on disallowing deductions. We dissected the audit manual and give you 11 audit-proofing tactics to ensure you get the deductions you deserve.

Why Incorporation Makes Your Home-Office Deduction Less Subject to an IRS Audit

You have probably read that the home office increases your chances of IRS audit. We’ve read that, too, but we don’t believe it. Regardless, there are a few things you can do to make your home-office audit-proof.

Home Office for Corporate Owner Requires Convenience of Employer

If you operate your business as a corporation and claim the home-office deduction, you need to prove that you use the home office for the convenience of the employer, your corporation. You must pass the convenience-of-the-employer test whether or not you are having the corporation reimburse you for home-office expenses.

Loans to Your Corporation Could Be Hazardous to Your Financial Health

If you are an owner-employee of your corporation, be careful loaning money to your corporation. If it goes under, you might not be able to deduct your bad loans. One solution is to make an additional contribution to capital, but that still doesn’t fully solve the problem.

Your Chances of Audit Are Increasing

In March 2007, the IRS released its latest audit statistics. Your odds of avoiding an audit are getting worse.

Tax Freedom Day

The percentage of income going to taxes has been increasing since 1900. April 30th, Tax Freedom Day, is the day that the average American has completed working to pay all of his or her taxes. Make sure your Tax Freedom Day comes as early as possible.

Tax Quiz—Sell Stock at a Loss to Your Daughter

If you sell stock to your relatives at a loss, don’t lose possible deductions – know the related party rules!

Tax Preparer Loses Records, Taxpayer Pays the IRS

Dr. Rinker lost over $60,000 of deductions when her tax preparer lost her records. Don’t lose your tax records, and don’t give your original records to anyone, not even your tax preparer!

Day Trading Produces Capital Losses

Shahrooz Jamie, a physician in West Virginia, had a side-business as a trader of securities. In his court case, he tried defending his net operating loss carryovers to offset the net income from his medical practice. The court ruled against him, imposing substantial overstatement penalties.

MLM Deductions Lost

Yung Chong worked a full-time regular job, and had a Section C side business. His records, while present were not enough to satisfy the court, which disallowed all of his nearly $10,000 in deductions for his side business. This case makes it clear: even if you have some records, if you do not have all the required records, you get no deductions.

Sponsoring Sports Teams

Revenue ruling 70-393 allows you to deduct the expenses of sponsoring a sports team.

Value of Time As a Contribution

If you donate cash to a charity, it is deductible. However, try and deduct the value of your time or services, and you run into problems with the law.

Reimbursement of Mileage for 105 Plan

For employees under the Section 105 Medical Plan, the law authorizes a medical deduction for transportation to receive medical care. You may reimburse any medical expense that you could otherwise deduct on your Form 1040.

New Entity to Manage Properties

One subscriber asks about making a corporation for his rental houses, and then using a proprietorship to do the management. He would charge a fee to the rentals. We don’t think this is a good idea because it will increase his taxes.


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