Taxes-High Risk for Audit-Afraid to Hit Send

[fikibiff]

So, those of you who have used TurboTax - when they do your audit risk, what is the result. Mine showed that I am a High Risk for an audit. Is this normal? My expenses came out around $3300 and my income was $1300 (for PC). Am I claiming too many deductions? Help!!

 

[Teresa Lynn]

your expenses for PC were $3300???? WOW!!!

 

[fikibiff]

I bought a lot of product, had 2913 miles (903.00) and had $600 for show/practice recipe food, + office supplies, postage, booth, general supplies. I know it's high, but I don't expect to buy nearly as much product and other supplies in the future.

 

[chefann]

That mileage really adds up, doesn't it? And it's 50.5¢ per mile for this year!

 

[wadesgirl]

I heard some where that if you claim over $500 in deductions you are flagged for at risk. I wouldn't worry about it too much but work this year to get either your expenses down or your income up!

 

[Teresa Lynn]

My expenses were right at $3,000 so when they were taken out I had a profit of $8,500
I don't buy food for my shows or keep track of mileage your "profile" shows 7 months in business and that seems like a lot of expense for less than a year

 

[vwpamperedchef]

To me, I thought my deductions seemed high too.I deleted some expenses, I'd rather not get the reimbursement---then get audited. You know?

I did the Taxcut program this year, because last year HR block charged us $450 to do our taxes. I would never tell DH that doing our own taxes was more challenging then I thought. I am on the lookout for a wonderful accountant for this years taxes!

(not to mention it took me HOURS to do the program!)

 

[BeaLorene]

My first year my expenses were high also due to Conference, mileage (I have to drive 15 miles to the nearest town), start up office expenses and a laptop. I use an Accountant and she ended up depreciating my laptop and kit over the next few years. She was impressed with our mileage tracker from PP. I have to say that the most depressing thing was seeing how much I spent on ink, paper and food for shows.:cry: I also realized that I was giving away too much as 'Consultant Gifts', printing too many newsletters, flyers, reports, recipes, etc. and giving away too many 'free shows'. Since then I have really economized when it comes to actually purchasing office stuff, which ain't easy... I am a Staples junkie. I love the flyers and PWS newletters that PC provides for us. No need to reinvent the wheel, as many have said here. It only took me a year to figure that one out. I have saved my 'free shows' as incentives or as a bonus to select hosts. I also am trying to love my phone...it's the cheapest and most effective way to reach out to my customers. I kind of learned this when a close friend let me know that she really didn't have time to read my lovely printed newsletter and usually just tossed it...and after all the hours and $ invested. :grumpy: You gotta love honesty....

Also, you can have 3 years of a loss before the IRS considers that our fun job is a hobby. I'm working on making that profit by then.

 

[straitfan]

To me, I thought my deductions seemed high too.I deleted some expenses, I'd rather not get the reimbursement---then get audited. You know?

I did the Taxcut program this year, because last year HR block charged us $450 to do our taxes. I would never tell DH that doing our own taxes was more challenging then I thought. I am on the lookout for a wonderful accountant for this years taxes!

(not to mention it took me HOURS to do the program!)

The 2nd year with Taxcut is MUCH easier and faster! I labored for hours and h ours last year, and the program "remembers" what you did last year and autofills lots of blanks and you just go in change the figures.

 

[chefjeanine]

Did you declare part of your house as an office? I’ve always heard that using your “home office” as a deduction is a big red flag.

 

[sfdavis918]

I think that as long as you can document everything you should be fine. Go ahead and hit send!

 

[cmdtrgd]

Just an FYI, you can have a loss 2 out of every 3 years. If you have a loss 3 years in a row, you lose business status (or something like that...not sure of the technical term) and the IRS considers it a hobby.

 

[fikibiff]

I did not declare an office. I do have receipts for all the food and purchases. Do I need anything else for milage other than PPP? I didn't keep track of my odomiter, but how many times I went to a host's house, cluster meeting, and stuff like that. Then I used mapquest to figure the milage. I also figured it for each receipt that I have for grocery store, office max, walmart, etc. Does that sound right?

 

[Christ Follower]

Just an FYI, you can have a loss 2 out of every 3 years. If you have a loss 3 years in a row, you lose business status (or something like that...not sure of the technical term) and the IRS considers it a hobby.

This is good to know! Thank you!

 

[BeaLorene]

Just an FYI, you can have a loss 2 out of every 3 years. If you have a loss 3 years in a row, you lose business status (or something like that...not sure of the technical term) and the IRS considers it a hobby.

Thanks for the info, Kate! That would have been a bummer next year if I followed my own advice....

 

[chefshawna]

I did not declare an office. I do have receipts for all the food and purchases. Do I need anything else for milage other than PPP? I didn't keep track of my odomiter, but how many times I went to a host's house, cluster meeting, and stuff like that. Then I used mapquest to figure the milage. I also figured it for each receipt that I have for grocery store, office max, walmart, etc. Does that sound right?

My accountant said that if they do audit you, you would have to have actual odometer readings for all mileage. It is best to just use one car as using two gets very complicated when doing taxes. If you go to an office supply store you can get a mileage log book to either put in your car or in a personal planner. Then each time you get in your car get it out and record starting mileage and then ending mileage. It makes it so much easier when tax time comes around. Then you can just put with your tax files and if your ever audited you have everything there and don't have to worry about it.
HTH

 

[vwpamperedchef]

The 2nd year with Taxcut is MUCH easier and faster! I labored for hours and h ours last year, and the program "remembers" what you did last year and autofills lots of blanks and you just go in change the figures.

Thanks for the tip! But this years taxes are going to be tricky because my DH is going overseas to the war, so we will have to file an extenstion.

Nothing is ever easy, is it?

 

[jbdowd0798]

Vanessa- just out of curiosity- why file an extension?? We are military too and didn't need to because of deployments and such. Just as an FYI- if you have to pay taxes, you have to do it by April 15th (or work out a plan with the IRS). So the paperwork still has to get done. The military offers VITA (Volunteer Income Tax Assistance) at most bases or we use TaxSlayer.com which is Free for military (LOVE that part). Also, you can go to I think its H&R Block or Turbo tax (can't remember which I used) and you can go through all the steps for free without sending it in. Thats what I did to double check myself before sending in TaxSlayer since this was my first year with PC.

Good Luck! Let me know if you need anything and I'll do what I can to help a fellow PCer & Military Spouse!!

 

[etteluap70PC]

A mileage trick I like is if you have all your recipts it says where the sotre is. It does not take a brain surgeon (I'm dissing irs peeps here) that you actually did drive those miles. I tend to write the miles RT on the recipt too.

 

[cookingwithlove]

I just filed my 3rd year and I finally show a profit. Still, I had $2000 in deductions and earned $4000. So that is 50% in deductions. My husband was just asking me what I was typing about and he blurted out that he had $18K in just travel last year for his business. I wouldn't worry about it too much. I did get audited last year because I did not pay the transit tax for the self employed (it was $6/year). How crazy, the state audited me for $6! I don't our taxes, we hire out for this and our accountant forgot to run the numbers on my little business. No big deal... I just paid it and they said Thanks!

This is the first year we owe anything.. scarey, but finally we are making some money after I quit my $$$$ job to stay home with the kids.

 

[pamperedalf]

I just finished putting in all my recites, so DH can finish taxes. I am so relieved.

 

[chefjwr]

My expenses were high-- including 3300 miles. My income $3800. I was flagged as high risk for audit on Turbo Tax. I did not take office expenses because I was told that really targets you. I did choose the box that said all of my investment was at risk. When I did this--my audit risk shot way up. My husband called the IRS about this and they heard what I do and what my investment was and what I have in tangible goods and they said to choose the "all " is at risk box. I was very stressed getting the figures together. It took a lot of time. I did not enjoy it. We electronically filed last Tues.

 

[smile10308]

Do you guys write off the mileage to and from your shows? I did, and later someone said I couldn't for some reason. Anyone know for sure. I hope so.

 

[BethCooks4U]

To answer the above question: YES you can deduct mileage to and from shows as long as you state you have a home office (I do that but don't claim the home part of office expenses). You can also claim mileage to the PO, bank, meetings - anything that is for your business.


I use turbo tax and mine says low risk. The only flag that showed was mileage.

It specifically says that you must have the odometer readings, start and end of year and each use. Using mapquest is not enough but I would think you'd at least have an arguement when you get audited.

I claim a home office (that's how you get allowed to do the mileage deduction) but I do not claim expenses from that - my DH doesn't want to deal with depreciation if we sold the house.

I do not mark "at risk" because the way I understand it I am not at risk of losing anything if my business fails - Pampered Chef will still be there even if I don't have shows. My investment (products) could be used solely in my home if I was no longer a consultant so there's no risk (IMO).

The rule we follow is that we must have a receipt for everything we claim - no receipt, no deduction. I also under claim - for instance, if I am traveling to visit family in TX I also have a team meeting with my TX downline and try to also do a show while there. I could technically deduct the whole trip but since part of the reason I am going is personal I only deduct half the mileage for that trip.

I feel that if I did get audited I would be able to justify what I have on my forms and I have a paper trail to back myself up. If I did do something wrong I would also point out that I have additional deductions that I didn't take so hopefully it would be a wash - except the stress it would cause.

Be careful and be honest and you'll be fine.

 

[chefjwr]

Beth,
My DH said we only had 2 choices to check "all investment at risk" or "part of the invistment is at risk". I wanted to choose "part" at risk but the IRS instructed Dan to choose "all" . Weird. Made me worry more. Since I own my own business whether or not PC will always be there doesn't change the fact that there is money invested that can be lost or at least not in dollar form. That is really the question that the IRS was answering --if I have supplies and products in exchange for my investment, is the investment really at risk? They said yes. Oh, it all seems to vague --again, it makes me a bit nervous even though I have my receipts in order.

 

[chefjwr]

Beth, do you keep a mileage log in your car to track odometer readings? I used mapquest and designated the purpose of each trip. I hope that will be ok.

 

[BethCooks4U]

Beth, do you keep a mileage log in your car to track odometer readings? I used mapquest and designated the purpose of each trip. I hope that will be ok.

Yes. I do keep a log in my car. Office Max has them for about $2 and you can record the whole year in one.

As far as the at risk question: my program let me say no. My only business is PC so if you have an additional business that would be different. I don't remember seeing that question in last year's tax program and wondered what I should say but like I said, I don't feel that I am taking any risk so I felt good saying no.

If you have all your receipts and filled everything out as honestly as you could I wouldn't worry. If you are audited just be forthright with them and it will be okay. I don't think the IRS is as nasty as their reputation.

...I did get a letter one year from them saying I owe money (an employer had sent 2 moving expense forms and instead of just using the corrected one the IRS added them together) and it did feel threatening but when I sent the documentation showing that they were wrong they actually sent me an apology.

 

[fikibiff]

To answer the above question: YES you can deduct mileage to and from shows as long as you state you have a home office (I do that but don't claim the home part of office expenses). You can also claim mileage to the PO, bank, meetings - anything that is for your business.

Can anyone else share their knowledge in on this. No where in the past did I see that you had to claim a home office to claim mileage. That is not how it read in Turbotax, either. The part in Turbotax that talked about mileage/home office seemed to be related to business expences and an employer, not a home based/owned business.

 

[fikibiff]

If you know your begining mileage and ending mileage, just a thought here, how hard would it really be to create a log if you already had the miles for each event and the days that they occured on. Either way, your talking about the same amount of miles and on the same days.

 

[BethCooks4U]

The best thing to do is talk to a tax professional or call the IRS. Don't use information shared by other laymen - we do what we believe is correct but we cannot know everyone's circumstances or the tax laws.

I do call the IRS with questions and have had professionals back check my returns (not every year) so I feel comfortable with mine but I can not tell you how to do yours or what the correct answers to your questions are.

Go to the experts.

That's why HO doesn't give us the answers either. If you call them they will tell you to talk to your tax accountant.

 

[chefann]

Can anyone else share their knowledge in on this. No where in the past did I see that you had to claim a home office to claim mileage. That is not how it read in Turbotax, either. The part in Turbotax that talked about mileage/home office seemed to be related to business expences and an employer, not a home based/owned business.

The part about having a home office is related to the rule that you can't deduct mileage for your usual commute. If you have an office, then your commute is to the office, and you CAN deduct mileage to other locations. Therefore, in order to deduct mileage to shows, you must have an office. And since you can only deduct mileage from your office to the secondary location (shows), it's best if the office location is in your home. Even if it's a corner of the bedroom. That's where you conduct business, so that's your office.But, as indicated above, always check with a tax professional.