Posted by John_NorCal on 11/10/07 4:44pm
Msg #220648

Taxes! Whew!

Just got back from a 2 day tax continuing ed class sponsored by the enrolled agents association. For those of you who have professional tax preparation done, and might have some questionable deductions, be prepared to have further scrutiny by your preparer. The IRS has raised the penalty to PREPARERS from $250.00 PER RETURN to a minimum of $1,000 PER ENTRY for returns that have deductions that might be questionable. In order for the preparer to protect themselves, the preparer needs to show that "more often than not" the deduction would be allowed. In order to protect ourselves we have to fill out a disclosure form 8275 citing case law, code section, etc that justifies the deduction and of course that form invites an audit. They are after the schedule c filers as well as the S corps. They want to close that $345 billion tax gap and they figure that $50 billion of it comes from small business. Just a word to the wise, keep records, substantiate your deductions and you should be alright.

Reply by WDMD on 11/10/07 5:02pm
Msg #220650

Question for you John. Did they say if preparers now need to see the proof (receipts,etc.), from the clients? If a client comes in and claims mileage of 25000 miles for example, does the preparer need to see the log to protect themselves? I'd hate to have to see every receipt in case of any dis-allowed deductions. Or is this just for positions in gray areas where the preparer may be taking an agressive position?

Reply by MikeC/NY on 11/10/07 6:11pm
Msg #220655

There have been stories in the news recently about franchise preparers such as Jackson Hewitt playing fast and loose with IRS rules, so I guess this was bound to happen eventually...

Question for you - it obviously means more work on your part (filling out a disclosure citing case law doesn't sound like a lot of fun), but how does it affect your relationship with your clients? Will they balk at paying more because you have more work to do, or do you just eat the added expense?

Reply by John_NorCal on 11/10/07 9:49pm
Msg #220668

The ball will be back in the payors court, I'll inform them of the need for disclosure, they can choose to forget the deduction, or just bite the bullet and pay the bill.

As for logs, my job is to ask if they have a log. It's up to them to maintain the log and show proof if need be.

The whole disclosure thing will more often than not come into play when someone wants to take a deduction for something that's kind of nebulous where there really isn't a clear cut answer and one might be stretching the point a bit.

Reply by MikeC/NY on 11/11/07 7:48pm
Msg #220716

What would you consider a questionable deduction?

I have a friend who has been battling the IRS for the past couple of years (and losing) over excessive mileage deductions. Of course, she didn't have a mileage log; since the IRS considers you guilty until proven innocent, they've frozen her bank account in anticipation of collecting taxes.

Clearly we all need to keep logs, and it's something I've been almost religious about. Other than that and the home office deduction, what other types of deductions are considered questionable or nebulous?

Reply by JerryhFL on 11/12/07 3:53am
Msg #220785

Re: What would you consider a questionable deduction?

I have a question about home office deduction.

Since your time is normaly split between your home office and borrowers choice of signing, how do much of your home office expenses do you write off.

Is it the full 100% or do you write off some other percentage based upon the hours you spend in office versus time out of office at a closing?

Reply by MikeC/NY on 11/12/07 10:20am
Msg #220816

Re: What would you consider a questionable deduction?

Assuming you have a home office that meets the IRS test, I think you can deduct 100%. It doesn't matter how much time you spend there, only that you actually use the space exclusively for your business.

I don't take that deduction, because I don't have an area in my home that would qualify and I've always heard that it's a big audit flag.