Big Numbers Attract Attention

Rising incomeAccording to the IRS, there were approximately 23.4 million individual income tax returns that reported nonfarm sole proprietorship activity, a 1.8-percent increase from 2010. Profits reported on these returns rose to $282.6 billion in 2011, a 5.6-percent increase over 2010.

These numbers sound impressive until you break them down to the individual level.  If we divided the total amount of the profits by the total number of returns, we find that the average business Schedule C shows a profit of less than 12,000 and the average weekly increase in profits was $12.30.   Some businesses were more.  Some less.

Big numbers can draw attention.  Small ones are easy to ignore.  Think about this when you look at your business tax schedule.   What kinds of expenses are drawing the attention of the IRS for audit?  Are they the kind of expenses that could possibly be personal and disallowed on audit?  Hmmmm.

When preparing your taxes, go to the other side of the desk and ask yourself, “If I were an IRS Agent (perish the thought), what things on this return would I look at to audit?”   I’m not saying you should not take the deductions that you are entitled to take.  Far from it.  Judge Learned Hand once wrote “Any one may so arrange his affairs that his taxes shall be as low as possible;”  Good advice.

However, the Roman poet Horace reminds us that “he who is greedy is always in want”.

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