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The short answer: probably not!
This is a sentence I hear at my tax desk every year, “I bought this for my business or I did that for my business but I’m not going to claim it because I have too many deductions!” Seriously? No you don’t.
I guess I should back track a little on this—if you’re claiming stuff you shouldn’t be claiming—that’s another story. But if you own a business and you have a legitimate business expense—then claim it.
Often times, small businesses, especially in the beginning, have losses. On your tax return it’s called a net operating loss or NOL. If you have an NOL, you carry that back two years and use it to offset income that you had two years ago. If you still have a loss, you can carry it forward for another 20 years!
Now sometimes you have an expense that gets limited if your business doesn’t have enough income—like a section 179 deduction or a home office expense. That doesn’t mean that you can’t claim these things, they just get carried forward to be used to offset your future income.
Don’t skip your deductions! I can’t stress this enough. Often, at the “big box” stores, they’ll skip your home office deduction because they’re “saving you money by not claiming it” since they charge you for each form. But it’s like that old expression, “pennywise and pound foolish.” Sure, you save a few bucks by not filing the 8829 form, but you just lost the carry-forward of a few hundred dollar deduction. This is especially important this year with taxes most likely going up next year. Even if your deductions won’t help your tax return right now—do not just leave them off. Otherwise, you would have to amend your prior returns to carryforward the deductions which will cost even more money in the end!
It’s still November, you have plenty of time to round up your receipts, review your mileage log, and make sure that you’re doing everything you need to be doing to maximize all of your deductions. Obviously you can’t claim stuff that’s not a real business expense. But you can claim everything that is a legitimate expense for your business. Not only can you claim it—it’s the right thing to do.
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For those of you who do not have a home office, these posts will help get you started:
http://robergtaxsolutions.com/tag/home-office-deduction/
http://robergtaxsolutions.com/2011/07/how-to-boost-your-home-office-deduction/
Hi Chris,
My personal opinion is that you hire yourself an EA to represent you for this audit. I don’t like having the IRS come to your home. (Full disclosure, I’m an EA, that’s how I make my money.) But seriously, I prefer that clients never talk to the IRS and that the IRS never goes to a taxpayer’s home.
That said–
1. Be prepared. The IRS agent should have given you a letter saying what the audit is about. Have everything ready.
2. Do not give her the originals, give her copies. You keep the originals.
3. Okay, so you didn’t have 25K in miles. You did have 15,000 miles. Can you document that? If not, it’s time to recreate that mileage log.
4. Do you have a home office? If you don’t have a home office, then your commuting miles aren’t deductible. So guess what Chris, you now have a home office. Oh, the IRS agent is going to want to see it so ahem—you’d better get it ready. (I’m very serious about that.)
5. Did you miss any other deductions? Because now’s a good time to have that ready. You’re going to lose on the 10,000 miles you didn’t drive so dig, dig, dig.
6. And here’s my suggestion: Unless that preparer of yours is a blood relative, turn her in. (Full disclosure, as an EA I have to pay all sorts of fees and things that “self-prepared” skips out on so I have some skin in the game turning those folks in.)
7. Once again, let me strongly encourage you to get help. If you honestly didn’t notice that your mileage claimed was off by 10,000 miles, what else don’t you know about your return? And you signed it–so as far as the IRS is concerned you’re the one who lied. Don’t go it alone.
Good luck.
I am a 1099 contractor getting audited, unbenounced to me this person raised my travel miles up to 25000 without asking me and I have roughly 15000, they filed it electronicly and gave it back to me, I payed an amount to the IRS. When I received the letter the other day I went through that return and was floored. The person who did my taxes did not sign the return they put self prepared. I am worried about this seriously. Any suggestions,? The IRS is coming to my home.