You Owe The IRS $553,861 => Payment Due
I recently received an email from Daegan Smith
with that headline. He was being audited by
the IRS. I know that that can be scary and it
can happen to anyone.
As a Tax Practitioner for over 15 years I have
participated in many audits and I find that
many people make the same mistakes over
and over again.
I recently wrote this article for my subscribers
and thought that it may be helpful for some
of the warriors in this forum.
i wrote this because I am currently in two
audits for two different clients who should
know better .. but alas we can only inform..
Hope this is helpful to someone.
When keeping records it is important To
know what records to keep and Why. Whenever
you purchase something or spend money for
your business there are basically three
elements that must be proven in an audit
1. Money was actually spent for or on
a specific item. This Is normally proven
by a receipt. The receipt will have who
money was spent with (store, restaurant,
airline etc.), how much was spent, date
it was spent and what was purchased.
2. That you actually are the one who spent
the money. Just because you have a receipt
does not mean that you are the one who
paid for what was spent. You could have
found the receipt on the floor and picked
it up..
In this case the IRS wants to see a cancelled
check, credit card statement or bank statement
that matches the date, amount and place you
spent the money.
3. Finally neither of these items proves that the
money you spent was for a business purpose. In
most cases the IRS understands that there are
types of purchases that are normal for the
operation of your specific type of business such
as special licenses, paper, ink, staples, paperclips,
pencils etc. but what about meals, travel and
entertainment?
For this they need some sort of contemporaneous
record system like a an appointment book or sign
in sheets from your opportunity meetings and
presentations.
These record need to state the business purpose of
the meeting, who was at the meeting, and date and
times of meetings.
The information must line up with the information
In the previous two records. The IRS will not take
your Word. They want to see documentation that was
done at the time the event took place.
If you keep this information it could save you
thousands of dollars especially in an audit. Because
one client thought all they needed was receipts
without the other records and the other thought all
they needed was a contemporaneous record without
the receipts they are both going to spend thousands
of dollars in taxes plus interest.
All of which could have been avoided if they kept
the proper documentation.
with that headline. He was being audited by
the IRS. I know that that can be scary and it
can happen to anyone.
As a Tax Practitioner for over 15 years I have
participated in many audits and I find that
many people make the same mistakes over
and over again.
I recently wrote this article for my subscribers
and thought that it may be helpful for some
of the warriors in this forum.
i wrote this because I am currently in two
audits for two different clients who should
know better .. but alas we can only inform..
Hope this is helpful to someone.
When keeping records it is important To
know what records to keep and Why. Whenever
you purchase something or spend money for
your business there are basically three
elements that must be proven in an audit
1. Money was actually spent for or on
a specific item. This Is normally proven
by a receipt. The receipt will have who
money was spent with (store, restaurant,
airline etc.), how much was spent, date
it was spent and what was purchased.
2. That you actually are the one who spent
the money. Just because you have a receipt
does not mean that you are the one who
paid for what was spent. You could have
found the receipt on the floor and picked
it up..
In this case the IRS wants to see a cancelled
check, credit card statement or bank statement
that matches the date, amount and place you
spent the money.
3. Finally neither of these items proves that the
money you spent was for a business purpose. In
most cases the IRS understands that there are
types of purchases that are normal for the
operation of your specific type of business such
as special licenses, paper, ink, staples, paperclips,
pencils etc. but what about meals, travel and
entertainment?
For this they need some sort of contemporaneous
record system like a an appointment book or sign
in sheets from your opportunity meetings and
presentations.
These record need to state the business purpose of
the meeting, who was at the meeting, and date and
times of meetings.
The information must line up with the information
In the previous two records. The IRS will not take
your Word. They want to see documentation that was
done at the time the event took place.
If you keep this information it could save you
thousands of dollars especially in an audit. Because
one client thought all they needed was receipts
without the other records and the other thought all
they needed was a contemporaneous record without
the receipts they are both going to spend thousands
of dollars in taxes plus interest.
All of which could have been avoided if they kept
the proper documentation.