The self-employed who work at home enjoy several perks as a result of their position, like the short walk to work and the lack of annoying cube-mates. As a trade-off, those who have themselves as a boss need to be extra careful when it comes to their financial dealings. Most people know about the benefit of using their homes and vehicles as tax "write-offs," but this class of workers often comes to the attention of IRS auditors, resulting in the dreaded audit. To stay ahead of the IRS, read on to learn more about how to avoid coming under scrutiny by keeping your finances above-board and legit.
Cash Business = IRS Interest
Electronic records, such as those generated by credit card transactions or rung into cash registers, are easy to track; the documentation and proof of the transaction is easily available if you are audited. Those that process cash transactions, like craft show vendors and home daycare operators, need to pay special attention to how they document their revenue. You can save yourself a lot of stress come audit time if you give out receipts with carbon copies or note the sales down in a register by hand or on your computer.
One Vehicle For Business and Personal Use
The IRS does allow you to deduct some vehicle expenses from your gross income, such as registration taxes, maintenance and mileage. The main caveat is good record keeping to separate your business use from your personal use. Try not to combine trips to purchase office supplies with a trip to pick up your kid from school and keep up with your beginning and ending mileage for every business use. There are plenty of great apps for tracking your mileage.
Travel, Meals and Entertainment
It bears repeating that careful record keeping is your best buddy when it comes to keeping up with business expenses. The IRS is not only interested in the amount of your lunch, but why it should be considered a business expense. Be sure to note the expense and the reason. For example: "coffee with my web site designer to discuss the design."
Be extremely cautious when mixing personal and business trips. Make sure that the bulk of time is really spent on business-related tasks, and that you really did need to travel to that location to do those tasks. For example, many larger cities, such as Atlanta, have merchandise marts that are open "to the trade" only. Sourcing inventory is a legitimate business expense, but these cities also offer an opportunity for a great family vacation. Just make sure that you keep the expenses completely separate if you take advantage of this perk.
For more information about avoiding IRS audits, consult with your accountant, like those at Bliss & Skeen CPAs.Share