Posts Tagged ‘Wall Street Journal’

IRS Questions Small Business Income

August 11, 2013

Rising income

The IRS has been sending out letters to small business owners that they may have under-reported their income. This is the same kind of letter that you might get from Publishers Clearing House – You may be a winner.  But you had better respond to the IRS letter.

Since the credit card companies have been issuing Forms 1099K to report the amount of money customers have paid by credit card, the IRS has been using these numbers to compare to data on the tax return.  Is the amount charged above or below the norm for this type of business?  Is there enough non-credit card sales reported?

This can obviously cause problems, especially if your customers want cash back in the charge transaction.  Now the business has a charge for more than the amount of the actual sale.  This could cause problems when IRS is doing their comparisons.  And requires a new level of record-keeping nightmare for the small business.

Always report all of your income.  Always.  As a worst case scenario, if the IRS took you before a jury of your peers to determine your guilt or innocence, many of the jurors will be employees and have no way to under-report their income.  However, I would challenge you to find 12 people who have never pushed a deduction.

Thoughtfully prepared records are your first and best line of defense with the IRS.  The better your records, the shorter your audit.

If you choose to be aggressive, do it on the expense side. (We are not making any recommendations here.  Aggressive tax positions are a personal choice.)

Just remember this – Pigs get fat.  Hogs get slaughtered.


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