Audit question

allenc · Joined: 04 Feb 2008 Posts: 8

I filed my taxes on Feb 5 this year electronically using Turbo Tax and
received my state (CA) and fed refund today by direct deposit. Does
that mean I can quit worrying about an audit? In general, if one is
going to be audited wouldn't he get the notice before a refund is sent
out?

Archived from group: misc>taxes

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

"allenc" wrote
>I filed my taxes on Feb 5 this year electronically using Turbo Tax and
> received my state (CA) and fed refund today by direct deposit. Does
> that mean I can quit worrying about an audit? In general, if one is
> going to be audited wouldn't he get the notice before a refund is sent
> out?

Oh Lord no. It would be nice if that were the case. They have about three
years to audit you, ten years to collect. In general though, if they were
to audit this latest year, you'll get a notice later this summer or early
fall, and maybe as late as the winter.

FYI, your audit chances are small, but they are making sizable increases in
the number of audits they perform. The greatest chances are for the
self-employed, those claiming large deductions, and higher income folks.
EIC is a hot area for fraud, and although that's generally for lower income
people, it's a current hot topic, so beware.

--
Paul A. Thomas, CPA
Athens, Georgia

allenc · Joined: 04 Feb 2008 Posts: 8

On Feb 15, 12:34 pm, "Paul Thomas, CPA"
wrote:
> "allenc" wrote
>
> >I filed my taxes on Feb 5 this year electronically using Turbo Tax and
> > received my state (CA) and fed refund today by direct deposit. Does
> > that mean I can quit worrying about an audit? In general, if one is
> > going to be audited wouldn't he get the notice before a refund is sent
> > out?
>
> Oh Lord no. It would be nice if that were the case. They have about three
> years to audit you, ten years to collect. In general though, if they were
> to audit this latest year, you'll get a notice later this summer or early
> fall, and maybe as late as the winter.
>
> FYI, your audit chances are small, but they are making sizable increases in
> the number of audits they perform. The greatest chances are for the
> self-employed, those claiming large deductions, and higher income folks.
> EIC is a hot area for fraud, and although that's generally for lower income
> people, it's a current hot topic, so beware.
>
> --
> Paul A. Thomas, CPA
> Athens, Georgia

I file a 1040 with sched E for one rental property and a sched C for a
small business on the side. The business is a food vending trailer
during the summer for special events just to earn some extra $$. I
also have a regular job with withholding, etc.

If I ever do get audited, say for sched E stuff or sched C expenses,
how detailed do they want receipts, eg, if you are claiming mileaga
allowance do they want receipts for every fill-up, or every receipt
for expenses such as ice, spoons, cups, etc ?

And if so, if you don't have every receipt, do they disallow the
deduction ?

One other thing -- Turbo Tax offers a feature that for $35.00 they
will have someone represent you in tax court if you are audited and
you never have to go there yoourself, do you think that would be
useful ?

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

"allenc" wrote
> I file a 1040 with sched E for one rental property and a
> sched C for a small business on the side. The business
> is a food vending trailer during the summer for special
> events just to earn some extra $$.
> I also have a regular job with withholding, etc.

If those activities show losses, and those losses off-set your regular
earnigns, be well prepared to prove all your deductions.

> If I ever do get audited, say for sched E stuff or sched
> C expenses, how detailed do they want receipts, eg,
> if you are claiming mileaga allowance do they want
> receipts for every fill-up, or every receipt
> for expenses such as ice, spoons, cups, etc ?

You'll need to verify the expenses you claimed. Lacking receipts, what
other supporting documentation do you have to prove they are legitimate?

"Receipts for every fill-up" only proves you have a receipt for a tank of
gas. It does not prove the mileage was for business. So your log of where
you went, how long you were there, etc and so on helps solidify your
business purpose, and therefore the deduction.

> And if so, if you don't have every receipt,
> do they disallow the deduction ?

Depends. How many receipts don't you have? And what types of expenses
don't you have receipts for? They are sticklers for documentation on
expenses for meals and entertainment. Lacking those generally means a loss
of deduction and a five yard penalty.

But if you are lacking a receipt for some food products, styrofoam plates,
cups, napkins, etc, but you can prove (via a canceled check) that you paid
that amount to the supplier that you use for those items, they'll probably
let that one go.

If you're claiming hundreds or thousands of dollars in mileage, but can only
prove one trip to the local county fair grounds, and back (your only event
for the year) expect them to significantly reduce the amount of your
expense.

Now, the more "stuff" you can't prove, the greater the chance that the
auditor will just heave all undocumented deductions and stick you hard. If
you're missing a couple here or there, and everything else is tight, they'll
probably let most of it go. If you're missing most of what you claim are
expenses, or the numbers just don't add up (they know yours is a high cash
buisness), you'll probably not end up smelling like a rose.

> One other thing -- Turbo Tax offers a feature that for
> $35.00 they will have someone represent you in tax
> court if you are audited and you never have to go
> there yoourself, do you think that would be useful ?

I hope you read the disclaimer really good, twice if necessary, and get
every friend and a few enemies to tell you what they see in the fine print.

A) You're not going to Tax Court. It'll never get there.
B) If you ain't got the documentation, you'll lose there in a heart beat.
C) $35 doesn't begin to cover the tax, interest and penalty you'll end up
paying.
D) The fine print says - if it's your fault........
E) If you don't have documentation - it's your fault.

You should not take deductions for expenses you can not support in one
manner or another.

--
Paul A. Thomas, CPA
Athens, Georgia

allenc · Joined: 04 Feb 2008 Posts: 8

On Feb 15, 1:16 pm, "Paul Thomas, CPA"
wrote:
> "allenc" wrote
>
> > I file a 1040 with sched E for one rental property and a
> > sched C for a small business on the side. The business
> > is a food vending trailer during the summer for special
> > events just to earn some extra $$.
> > I also have a regular job with withholding, etc.
>
> If those activities show losses, and those losses off-set your regular
> earnigns, be well prepared to prove all your deductions.
>
> > If I ever do get audited, say for sched E stuff or sched
> > C expenses, how detailed do they want receipts, eg,
> > if you are claiming mileaga allowance do they want
> > receipts for every fill-up, or every receipt
> > for expenses such as ice, spoons, cups, etc ?
>
> You'll need to verify the expenses you claimed. Lacking receipts, what
> other supporting documentation do you have to prove they are legitimate?
>
> "Receipts for every fill-up" only proves you have a receipt for a tank of
> gas. It does not prove the mileage was for business. So your log of where
> you went, how long you were there, etc and so on helps solidify your
> business purpose, and therefore the deduction.
>
> > And if so, if you don't have every receipt,
> > do they disallow the deduction ?
>
> Depends. How many receipts don't you have? And what types of expenses
> don't you have receipts for? They are sticklers for documentation on
> expenses for meals and entertainment. Lacking those generally means a loss
> of deduction and a five yard penalty.
>
> But if you are lacking a receipt for some food products, styrofoam plates,
> cups, napkins, etc, but you can prove (via a canceled check) that you paid
> that amount to the supplier that you use for those items, they'll probably
> let that one go.
>
> If you're claiming hundreds or thousands of dollars in mileage, but can only
> prove one trip to the local county fair grounds, and back (your only event
> for the year) expect them to significantly reduce the amount of your
> expense.
>
> Now, the more "stuff" you can't prove, the greater the chance that the
> auditor will just heave all undocumented deductions and stick you hard. If
> you're missing a couple here or there, and everything else is tight, they'll
> probably let most of it go. If you're missing most of what you claim are
> expenses, or the numbers just don't add up (they know yours is a high cash
> buisness), you'll probably not end up smelling like a rose.
>
> > One other thing -- Turbo Tax offers a feature that for
> > $35.00 they will have someone represent you in tax
> > court if you are audited and you never have to go
> > there yoourself, do you think that would be useful ?
>
> I hope you read the disclaimer really good, twice if necessary, and get
> every friend and a few enemies to tell you what they see in the fine print..
>
> A) You're not going to Tax Court. It'll never get there.
> B) If you ain't got the documentation, you'll lose there in a heart beat.
> C) $35 doesn't begin to cover the tax, interest and penalty you'll end up
> paying.
> D) The fine print says - if it's your fault........
> E) If you don't have documentation - it's your fault.
>
> You should not take deductions for expenses you can not support in one
> manner or another.
>
> --
> Paul A. Thomas, CPA
> Athens, Georgia

>> Depends. How many receipts don't you have? And what types of expenses
don't you have receipts for? They are sticklers for documentation on
expenses for meals and entertainment. Lacking those generally means a
loss
of deduction and a five yard penalty. <<

I don't have receipts for gas purchases, I just estimated how far I
drove to events and added the mileage. I use a debit card to pay for
gas, so it's on my statement from the credit union, but I didn't keep
a log at all. Meals at events, nobody gives receipts for that, it's
just an estimate. For trips to Wal-Mart and Costco for supplies I kept
all of those.

ChrisZ · Joined: 27 Jan 2008 Posts: 10

On Feb 15, 4:41 pm, allenc wrote:
> On Feb 15, 1:16 pm, "Paul Thomas, CPA"
> wrote:
>
>
>
> > "allenc" wrote
>
> > > I file a 1040 with sched E for one rental property and a
> > > sched C for a small business on the side. The business
> > > is a food vending trailer during the summer for special
> > > events just to earn some extra $$.
> > > I also have a regular job with withholding, etc.
>
> > If those activities show losses, and those losses off-set your
regular
> > earnigns, be well prepared to prove all your deductions.
>
> > > If I ever do get audited, say for sched E stuff or sched
> > > C expenses, how detailed do they want receipts, eg,
> > > if you are claiming mileaga allowance do they want
> > > receipts for every fill-up, or every receipt
> > > for expenses such as ice, spoons, cups, etc ?
>
> > You'll need to verify the expenses you claimed. Lacking receipts,
what
> > other supporting documentation do you have to prove they are
legitimate?
>
> > "Receipts for every fill-up" only proves you have a receipt for a tank
of
> > gas. It does not prove the mileage was for business. So your log of
where
> > you went, how long you were there, etc and so on helps solidify your
> > business purpose, and therefore the deduction.
>
> > > And if so, if you don't have every receipt,
> > > do they disallow the deduction ?
>
> > Depends. How many receipts don't you have? And what types of
expenses
> > don't you have receipts for? They are sticklers for documentation on
> > expenses for meals and entertainment. Lacking those generally means a
loss
> > of deduction and a five yard penalty.
>
> > But if you are lacking a receipt for some food products, styrofoam
plates,
> > cups, napkins, etc, but you can prove (via a canceled check) that you
paid
> > that amount to the supplier that you use for those items, they'll
probably
> > let that one go.
>
> > If you're claiming hundreds or thousands of dollars in mileage, but
can only
> > prove one trip to the local county fair grounds, and back (your only
event
> > for the year) expect them to significantly reduce the amount of your
> > expense.
>
> > Now, the more "stuff" you can't prove, the greater the chance that
the
> > auditor will just heave all undocumented deductions and stick you
hard. If
> > you're missing a couple here or there, and everything else is tight,
they'll
> > probably let most of it go. If you're missing most of what you claim
are
> > expenses, or the numbers just don't add up (they know yours is a high
cash
> > buisness), you'll probably not end up smelling like a rose.
>
> > > One other thing -- Turbo Tax offers a feature that for
> > > $35.00 they will have someone represent you in tax
> > > court if you are audited and you never have to go
> > > there yoourself, do you think that would be useful ?
>
> > I hope you read the disclaimer really good, twice if necessary, and
get
> > every friend and a few enemies to tell you what they see in the fine
print.
>
> > A) You're not going to Tax Court. It'll never get there.
> > B) If you ain't got the documentation, you'll lose there in a heart
beat.
> > C) $35 doesn't begin to cover the tax, interest and penalty you'll end
up
> > paying.
> > D) The fine print says - if it's your fault........
> > E) If you don't have documentation - it's your fault.
>
> > You should not take deductions for expenses you can not support in
one
> > manner or another.
>
> > --
> > Paul A. Thomas, CPA
> > Athens, Georgia
> >> Depends. How many receipts don't you have? And what types of
expenses
>
> don't you have receipts for? They are sticklers for documentation on
> expenses for meals and entertainment. Lacking those generally means a
> loss
> of deduction and a five yard penalty. <<
>
> I don't have receipts for gas purchases, I just estimated how far I
> drove to events and added the mileage. I use a debit card to pay for
> gas, so it's on my statement from the credit union, but I didn't keep
> a log at all. Meals at events, nobody gives receipts for that, it's
> just an estimate. For trips to Wal-Mart and Costco for supplies I kept
> all of those.

The statement from the credit union listing the gas purchases should be
sufficient however if you are claiming the per mile deduction then you
need a logbook showing the business miles.

--
Message posted using http://www.talkabouttaxes.com/group/misc.taxes/
More information at http://www.talkabouttaxes.com/faq.html

allenc · Joined: 04 Feb 2008 Posts: 8

On Feb 15, 1:29 pm, "ChrisZ" wrote:
> On Feb 15, 4:41 pm, allenc wrote:
>
>
>
>
>
> > On Feb 15, 1:16 pm, "Paul Thomas, CPA"
> > wrote:
>
> > > "allenc" wrote
>
> > > > I file a 1040 with sched E for one rental property and a
> > > > sched C for a small business on the side. The business
> > > > is a food vending trailer during the summer for special
> > > > events just to earn some extra $$.
> > > > I also have a regular job with withholding, etc.
>
> > > If those activities show losses, and those losses off-set your
> regular
> > > earnigns, be well prepared to prove all your deductions.
>
> > > > If I ever do get audited, say for sched E stuff or sched
> > > > C expenses, how detailed do they want receipts, eg,
> > > > if you are claiming mileaga allowance do they want
> > > > receipts for every fill-up, or every receipt
> > > > for expenses such as ice, spoons, cups, etc ?
>
> > > You'll need to verify the expenses you claimed. Lacking receipts,
> what
> > > other supporting documentation do you have to prove they are
> legitimate?
>
> > > "Receipts for every fill-up" only proves you have a receipt for a tank
> of
> > > gas. It does not prove the mileage was for business. So your log of
> where
> > > you went, how long you were there, etc and so on helps solidify your
> > > business purpose, and therefore the deduction.
>
> > > > And if so, if you don't have every receipt,
> > > > do they disallow the deduction ?
>
> > > Depends. How many receipts don't you have? And what types of
> expenses
> > > don't you have receipts for? They are sticklers for documentation on
> > > expenses for meals and entertainment. Lacking those generally means a
> loss
> > > of deduction and a five yard penalty.
>
> > > But if you are lacking a receipt for some food products, styrofoam
> plates,
> > > cups, napkins, etc, but you can prove (via a canceled check) that you
> paid
> > > that amount to the supplier that you use for those items, they'll
> probably
> > > let that one go.
>
> > > If you're claiming hundreds or thousands of dollars in mileage, but
> can only
> > > prove one trip to the local county fair grounds, and back (your only
> event
> > > for the year) expect them to significantly reduce the amount of your
> > > expense.
>
> > > Now, the more "stuff" you can't prove, the greater the chance that
> the
> > > auditor will just heave all undocumented deductions and stick you
> hard. If
> > > you're missing a couple here or there, and everything else is tight,
> they'll
> > > probably let most of it go. If you're missing most of what you claim
> are
> > > expenses, or the numbers just don't add up (they know yours is a high
> cash
> > > buisness), you'll probably not end up smelling like a rose.
>
> > > > One other thing -- Turbo Tax offers a feature that for
> > > > $35.00 they will have someone represent you in tax
> > > > court if you are audited and you never have to go
> > > > there yoourself, do you think that would be useful ?
>
> > > I hope you read the disclaimer really good, twice if necessary, and
> get
> > > every friend and a few enemies to tell you what they see in the fine
> print.
>
> > > A) You're not going to Tax Court. It'll never get there.
> > > B) If you ain't got the documentation, you'll lose there in a heart
> beat.
> > > C) $35 doesn't begin to cover the tax, interest and penalty you'll end
> up
> > > paying.
> > > D) The fine print says - if it's your fault........
> > > E) If you don't have documentation - it's your fault.
>
> > > You should not take deductions for expenses you can not support in
> one
> > > manner or another.
>
> > > --
> > > Paul A. Thomas, CPA
> > > Athens, Georgia
> > >> Depends. How many receipts don't you have? And what types of
> expenses
>
> > don't you have receipts for? They are sticklers for documentation on
> > expenses for meals and entertainment. Lacking those generally means a
> > loss
> > of deduction and a five yard penalty. <<
>
> > I don't have receipts for gas purchases, I just estimated how far I
> > drove to events and added the mileage. I use a debit card to pay for
> > gas, so it's on my statement from the credit union, but I didn't keep
> > a log at all. Meals at events, nobody gives receipts for that, it's
> > just an estimate. For trips to Wal-Mart and Costco for supplies I kept
> > all of those.
>
> The statement from the credit union listing the gas purchases should be
> sufficient however if you are claiming the per mile deduction then you
> need a logbook showing the business miles.
>
> --
> Message posted usinghttp://www.talkabouttaxes.com/group/misc.taxes/
> More information athttp://www.talkabouttaxes.com/faq.html- Hide quoted text -
>
> - Show quoted text

Well, I don't have one for 2007, but will start keeping one. Just a
small spiral binder with date and amount of gas purchased, and
whatever the business travel was ??

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

"allenc" wrote
> Well, I don't have one for 2007, but will start keeping one.
> Just a small spiral binder with date and amount of gas
> purchased, and whatever the business travel was ??

If you plan to deduct actual costs, you MUST keep a mileage log showing, at
a minimum, date, destination, business purpose, total miles..

You take total annual business miles and divide them into total miles on the
vehicle (business and personal). You them take the total of your actual
auto expenses (fuel, oil, repairs, insurance, etc) and multiply the business
use percent by the total expenses.

You can them deduct that amount of the total expenses that relate to your
business use based on miles driven.

The IRS ~~~WILL~~~ cross reference your log with other documentation, so
that if you claim you drove to the bank, you had better have made some
documented bank transaction (a deposit slip would be nice, or where you
cashed a check for change for the till). If you say you drove to the
supplier to buy stuff, you had better show a receipt or canceled check with
that date on it.

Get it?

They ain't dumb.

--
Paul A. Thomas, CPA
Athens, Georgia

D. Stussy · Joined: 25 Aug 2007 Posts: 126

"Paul Thomas, CPA" wrote in message$rc2.30313@bignews1.bellsouth.net...
> "allenc" wrote
> >I filed my taxes on Feb 5 this year electronically using Turbo Tax and
> > received my state (CA) and fed refund today by direct deposit. Does
> > that mean I can quit worrying about an audit? In general, if one is
> > going to be audited wouldn't he get the notice before a refund is sent
> > out?
>
> Oh Lord no. It would be nice if that were the case. They have about
three
> years to audit you, ten years to collect. In general though, if they were
> to audit this latest year, you'll get a notice later this summer or early
> fall, and maybe as late as the winter.

For California state income tax, it's 4 years. There are also other
extensions to the period if your federal return is adjusted.

taxmama2007 · Joined: 16 Feb 2008 Posts: 3

Despite the fact that you got a refund, you can get audited for upto
3 years after you file.

http://www.qcktax.com

mrdarrett · Joined: 25 Aug 2007 Posts: 29

On Feb 15, 12:34 pm, "Paul Thomas, CPA"
wrote:
> "allenc" wrote
>
> >I filed my taxes on Feb 5 this year electronically using Turbo Tax and
> > received my state (CA) and fed refund today by direct deposit. Does
> > that mean I can quit worrying about an audit? In general, if one is
> > going to be audited wouldn't he get the notice before a refund is sent
> > out?
>
> Oh Lord no. It would be nice if that were the case. They have about three
> years to audit you, ten years to collect. In general though, if they were
> to audit this latest year, you'll get a notice later this summer or early
> fall, and maybe as late as the winter.
>
> FYI, your audit chances are small, but they are making sizable increases in
> the number of audits they perform. The greatest chances are for the
> self-employed, those claiming large deductions, and higher income folks.
> EIC is a hot area for fraud, and although that's generally for lower income
> people, it's a current hot topic, so beware.
>
> --
> Paul A. Thomas, CPA
> Athens, Georgia

Large deductions... how large is large?

Michael

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