subject to an audit<\/a> right so that is why we are talking about it.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0So what’s number 1 on the list? Is this the biggest thing that you see or is this just number 1 on the list?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 It just happens to be number 1 on the list.\u00a0 The first one will be home based businesses.\u00a0 You know more than ever people are working from home now and they want to take that home interest deduction or the home business deduction you know they want to figure out the square footage of their home is dedicated to business purposes and they want to figure out the percentage and take off the, deduct the interest.<\/p>\nPAT: <\/strong>\u00a0I had a home business many years ago and I thought about doing that not only take off a desk I bought for my home office, I got audited because of the desk.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah I mean it does happen.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Well don’t home offices trigger an audit like that is the whole point of this one.\u00a0 Cause that is what I heard is that true?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0I have a theory that they can because it’s heavily abused and\u00a0a lot\u00a0of people, remember saying you know pigs get fat and hogs get slaughtered, and so people have a tendency to be kind of hoggish about what they deduct on their home you know for the square footage and what not.\u00a0 I did have an audit on a home business deduction one time and they were deducting, it was like a 3 bedroom home and they were deducting\u00a0the square footage of 2 bedrooms in the house and I was a little skeptical at first and then I had them take photos of\u00a0the actual work spaces and that the\u00a0work spaces\u00a0were an absolute disaster\u00a0I mean there was papers everywhere, but it was clear that people were working in that space cause nobody would keep their house like that.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Right paper everywhere<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Exactly, and when we went to the auditors come it was gee I don’t know if I can allow this that\u00a0work space\u00a0is pretty messy and I just kind of laughed and I said well I should send you a picture of my actual office at my office building cause it’s not any better.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0So home based business compared to home office deduction are they one and the same?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah that’s one and the same is you just have to be careful.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Cause home based business you think about like Mary Kay, the jewelry, and that kind of stuff, and you have people like me that have a real office and a home office but I just don’t take that home office deduction cause I always thought it would trigger just a migraine of an audit.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah and there could be distinctions you know you could have a home based business that was more of like a hobby.\u00a0 Give you an example you bring in $5000 worth of income and you are trying to write off $10,000 worth of deductions.\u00a0 I mean you are not going to get away with that very long for very many years before the IRS says hey can we take\u00a0look\u00a0at what you are doing here because it looks like you know you are writing off your lifestyle.\u00a0 Happens a lot in the MLM network marketing businesses like you mentioned Mary Kay and I’m not singling those people out.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Well this is just what popped\u00a0in\u00a0my head.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Right but they you know they have a lot of travel a lot of times they go to\u00a0a lot\u00a0of conventions and things like that so you just want to make sure that…They go to the people\u2019s houses usually. Yeah well I mean in terms of there going to have a lot of travel where they go to conventions where they get pumped up and so they can recruit more members and stuff.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 So the second on the list is self-employment taxes.\u00a0 We talked about this one a lot on the show.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yeah it happened quite a bit you know if you are a schedule C\u00a0filer\u00a0and a schedule C\u00a0filer\u00a0is just somebody who’s self-employed they get\u00a0a 1099\u00a0instead of a W-2 so there is no automatic withholding and one of the killers for being truly self-employed and filing on a schedule C is that you have to pay your self-employment tax.\u00a0 You know I think Pat George here is our producer and I think he probably gets a W-2 so he gets taxes withheld, he gets FICA tax withheld by the station by the company that employees him, and then he matches half of the FICA as well so it’s 7.65% the company pays 7.65% that they employee pays but when you are self-employed you actually have to match both halves with is 15.3% right off the top and so that would be a pretty good argument for incorporating and we don’t really have the time to talk about that on the show today but you do see people who forget to file that schedule SE which stands for self-employment when they file their tax return with their schedule C.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Pat actually has several businesses so I’m sure, are you paying your self-employment\u00a0tax\u00a0Pat?<\/p>\nPAT: <\/strong>\u00a0 Oh yeah that’s why every year I have to sell shares of my stock just to pay my taxes.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 I want to buy some of those shares I think.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 I’m curious why self-employed people never I shouldn’t say never but why a lot of self-employed people don’t pay their taxes on time and I think you know for me for being self-employed for so long like now I kind of got it down but a lot of people like their income fluctuates and I think maybe they don’t know but they should still take that 15% and\u00a0 just…<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Did you just seriously ask that question after doing this show for almost a year?\u00a0 The reason that self-employed people don’t you know pay their taxes on time is because there is no automatic mechanism to make it happen.\u00a0 Back before…..<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 I know but they know it’s coming is what I’m saying so why not pay it?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Because it is a negative thought and so you do it.<\/p>\nPAT: <\/strong>\u00a0 Put it off as long as you can you know you have to pay it then and just do it then.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Absolutely<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Is it self-discipline I guess as opposed to like your W-2’s so they are just going to take it out.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Well let me give you some historical perspective before about 1920 and I do not know if that is the exact date but there was no automatic withholding from paychecks for people that were wage earners so what happened is everybody in America who is liable to pay income tax just got a big bill at the end of the year or April 15th and so obviously there were some compliance problems because and also if it’s not forcibly withheld and you have to pay that big chunk you know once a year then it causes taxpayers to realize how high the tax rate actually is ok.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Oh yeah.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 So congress decided hey we are going to go ahead and treat you know what 80% of the workforce,\u00a080% of the population just like lemmings and we are going to just go ahead and take it out of there check you know from force withholding on the front end and that way they won’t realize how much money we are actually taking, how much money we are actually spending and how high the tax burden actually is.\u00a0 But there is no real way to do that on the 1099 side because you know the government can’t get in the way of that self-employed person and their customers.\u00a0 So I think that is really the reason why self-employed people have so much trouble is because again like you said it fluctuates and what not so you have to set up some kind of discipline in order to get that done correctly and we talk about real estate agents all the time, they should take out some reasonable percentage out of every closing and remit it to the IRS in the form of an estimated tax payment.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 See again I don’t pay myself like everyone else in this business takes a commission, I take a salary.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah and that’s and right and you take a salary you have withholdings from your paycheck from your corporation right I think that is a more sophisticated…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Dividends, distributions<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 But I am like so disciplined I don’t need to write myself a check without doing that online payment.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah that’s great I mean that’s the absolutely way it ought to be done but you know it’s kind of rare.\u00a0 I think that online payment is a good point in that I think it’s only been a year or two that the IRS\u00a0had the ability for taxpayers to just log onto a website and pay by ACH or by\u00a0credit card like almost every other business had for at least 10 or 15 years.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 It makes a\u00a0difference\u00a0though.<\/p>\nDARRIN T. MISH<\/strong>:\u00a0 It does it’s actually easier right it’s psychologically perhaps for some people a little bit easier to just go ahead and pay it online then to write that check with all of those zeros on it that you have to send in.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Absolutely I would agree.\u00a0 So the 3rd one on our list is work-related deductions.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah and this kind of dovetails into what I was talking about earlier with the travel related stuff.\u00a0 You know if you’re work-related deductions are disproportionate to your income that you are bringing in then you are probably going to get an audit right so if you back to my example if you had a $100,000 in income and you have a $120,000 in work related deductions every year, year after year it’s probably\u00a0going to be a red flag for the IRS to go ahead and take a look to just see what is going on there.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Oh man I hear the music already it’s about that time ah number 4 just so you will stick around throughout the break is\u00a0failure\u00a0to file a tax return it’s a good one.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0A lot more common than most people know right.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0He gets it all the time. \u00a0Darrin has story after story where people haven’t filed in 20 years and it’s amazing like Disney poof you make it go away.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 You are listening to the IRS Solution Attorney show with Darrin T. Mish I’m your co-host Katrina Madewell we’ll be back in a minute.<\/p>\n(Commercial break)<\/p>\n
KATRINA MADEWELL: <\/strong>\u00a0 You are listening to the IRS Solution Attorney show and if you\u2019re just tuning in with us today’s topic is 15 Flags that could trigger an IRS Audit.\u00a0 Pretty right on time for March.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0Yep we better hurry up cause we are on like number 4 and we don’t have that much time today so.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Failure to file a tax return.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah you know this is actually really common\u00a0we call them non-filers in the business.\u00a0 My favorite story I’ve shared this many times on the air was a gentleman who came in he was visibly trembling and shaking and came into the office and he wanted some help with a tax problem so we sat down and I asked him what the problem was and he says well I haven’t filed tax returns in a long time, I said ok that’s fine, that’s normal or in my practice at least.\u00a0 How long has it been, he said well a long time, alright I’m used to it hit me with it.\u00a0 He says well 1960 was the last time he had filed a tax return and that’s probably in 2010 or something like that.\u00a0 And so I actually got a big grin on my face and I started laughing, but I wasn’t laughing at him though I was laughing along with him because I knew that he would only need to file the last 6 years returns to be considered current and caught up, and the irony was I was born after 1960.\u00a0 So we got him worked out and it all got settled up and he got to go on with his life but you know actually the failure to file a tax return can trigger an audit, it’s called when the taxpayer doesn’t file a tax return the IRS can repair something called a substitute for a return or an SFR.\u00a0 And what they do is for self-employed people who get 1099’s, this happens quite a bit they just take their 1099, they add up all the 1099’s\u00a0multiply\u00a0times tax rate, no deductions and no expenses and they’ve got the income side correct and they go ahead and assess the tax cause the taxpayer and that’s not a good thing.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0\u00a0 If they do that can that be amended?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 You can file, you have the right to file a subsequent original tax return to reduce the liability and we do that quite a bit that’s very common in our practice but that is a type of audit and it’s not the kind of audit that most people want to go through.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 So we talked about this one a little bit last week but number 5 is claiming dependents and ex-spouse claims.\u00a0 This is a good one, baby’s momma.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah, I was going to say that but…..<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 I had to take it from you baby momma ….<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 I didn’t think that was all that polite.\u00a0 What happens is when you have a you know a divorce situation or parents that aren’t together there’s actually a race to file your tax return to claim the kids and it doesn’t matter really what the court order says, with who can claim the kids or not.\u00a0 The IRS is going to\u00a0go ahead and honor the first person who claims the kids….<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Which I think is ridiculous because you know there is some just doing that every year.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Oh\u00a0yeah\u00a0I’m sure there are people that run out there probably January 2nd and file their\u00a0 tax returns just so they can claim the kids.\u00a0 But you know if you both claim the kids then you both are going to get some kind of audit because the 2nd person that claims them is not going to be allowed so….<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 But they are usually going to be the one with the trouble because they filed 2nd.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 There is one thing we haven’t touched upon is that there\u00a0is\u00a0several kinds of audits, right? So there is the audit that we all really fear and that is the in-office audit right?<\/p>\nWhere they either come to your office which is really bad or you go to their office which is almost as bad and you have to bring the big box of documents and the proof and substantiation\u00a0 and stuff but there’s also correspondence audits and that’s what one of the things that we’re touching on today is that like in the case of you\u00a0 know claiming dependents that somebody else has already claimed, you probably not going to get an in-person audit you are going to get a correspondence audit you are going to get a letter that says beep you know do over you know because you claimed this child that you are not entitled to because somebody else already claimed them you owe us x amount of tax do you agree or disagree and then kind of goes on from there.<\/p>\n
KATRINA MADEWELL: <\/strong>\u00a0 How does that differ though from a regular audit cause I didn’t even know there\u00a0was\u00a0different types of audits.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 There correspondence audit is usually limited to one issue sometimes 2,\u00a0it’s very limited to a single issue so it’s a little bit easier to deal with.\u00a0 The hardest audits are the forget the exact term but it’s basically where they do a statistical audit cause they want to see everything, every single thing that you claimed and those are the hardest\u00a0because..<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 What triggers that one?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 It’s purely random and they don’t do them all the time they only do them during certain periods of times so they might have like they do some audits of I’ve actually talked to people that have had these but I’ve never handled one but you just get an audit notice that\u00a0say, well for purely statistical purposes we are going to see we are going to audit your entire return and we’ll see what’s up and what they do is they do you know thousands of these across the country to see where the problem areas are so they know…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 What to fix what to change on\u00a0there\u00a0end.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 What to fix and who to audit you know more often, what types of tax payers for example.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 So number 6 on our list for 15 Red Flags that could trigger an audit is medical expenses.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah you see this a lot because there is a limit to how much you know how much your medical expenses have to be before you can deduct those on a schedule A and medical expenses are an itemized deduction and I believe they have to exceed 10% of your adjusted gross income, so think about that that is a pretty high number right?<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 I think so yeah that would be like you went to the hospital\u00a0from a car accident.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 So if you earned $75,000 a year that mean’s your out of pocket medical expenses had to exceed $7500 before you can itemize\u00a0those and put them on your tax return and that’s relatively rare so often what you’ll see is you will see people that take you know what the hospital billed them the insurance paid some\u00a0of that and things like that so..<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 So that’s what they are looking for is to see what you actually paid<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah trying to see what is actually deductible.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Alright so number 7 on our list is omitting income, that never happens, never happens\u00a0omitting\u00a0income?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 If I had a nickel for every time\u00a0a person said I forgot to put\u00a0a 1099\u00a0on my tax return<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 They send them late we’ve talked about that.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 They do, they do but if you have some sort\u00a0for\u00a0calculating your income, system can be really simple like every you know all cash and checks get deposited into checking account and then you can add up those at the end of the year if you have some kind of rudimentary system you shouldn’t have a problem with this but it happens\u00a0a lot\u00a0where people you know the 1099 they didn’t get it they lost it they forgot about it whatever but if the, we talked about this in the past, and that is that the IRS is going to match what’s on your tax return to the information returns that they receive on the other end so that the W-2’s and the 1098’s and the 1099’s and all of those things they are going to match the computer’s going to automatically match that\u00a0 so if you are a self-employed person and you’re reporting $50,000 income\u00a0 on a Schedule C and the 1099’s equal $60,000 in income you are going to get audited 100% of the time every single time so this is one of those that you just can’t…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Plus playing with fire there going to get the information so you might as well make sure that it is right.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah I mean there is no you\u2019re not going to get away with that one you could probably get away from overstating expenses a lot easier then understating income that is reported to the IRS.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Right, right because they already have the numbers.\u00a0 Number 8 is charitable donations, thinking those deductions right, the charitable donation deductions.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah these rules got tightened up in the last several years and that now we didn’t\u00a0used\u00a0to have to prove our charitable donations, for\u00a0example\u00a0you could just put cash in the collection you know basket at church and you could kind of just make up that number but in the last say decade the IRS has really tightened us up until then you are going to get those receipts, you know those statements at the end of the year from all your charitable organizations. One other area that I see that causes some audits is the donations to Salvation Army and Goodwill and things like that.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Yeah that is what I was going to say because they don’t usually put anything on that we talked about that.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah so you are going to want to if you are going to donate those\u00a0items first of all\u00a0I think you should donate those items that you are not going to use I think it just makes a lot of sense it’s just the right thing to do but\u00a0 if you are going to write that stuff off, you’re going to want to write down on the receipt every single thing that you donated so one dress shirt value $6, for example one sofa value whatever $65 whatever it is.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 You can look up on their website and get an idea what something like that sells for.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah there’s lots and lots of websites that can help you understand\u00a0like\u00a0the items that you donate what they are worth and I actually think that I mean this is kind of strange but taking everybody has a you know a camera\u00a0in their pocket nowadays\u00a0just take a picture what you donated especially if they are big items you know a bag of clothes I don’t know if you are going to take pictures but if you are going to donate it..<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0You’re donating a bunch of stuff…<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 A car, a boat, a sofa,\u00a0a dresser,\u00a0a bunch of furniture things like that you should take photos because you just never know and it’s easy to…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 It’s always better to have more documentation than not enough.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah my nightmare is when somebody comes into the office and they want audit representation and I look at the audit paperwork and help them narrow it down the issues ok these are the things that the IRS wants to look at and then I say so tell me about your documents and almost without fail I hear the fire, flood, hurricane story.\u00a0 You know, oh I don’t have any records to substantiate that stuff because they are gone.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 So what happens in that case?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Well I don’t take I don’t take a lot of those cases because I only represent people that have realistic expectations right, so if that’s if that’s the story and they say I really don’t owe any money and I want you to fight this all the\u00a0way to the supreme court, you hear that a lot, you got to give me some bullets for the gun and documents and proof. Substantiation\u00a0are\u00a0the bullets so if you don’t give me bullets for the gun I’m not going in to get my head kicked in because it’s not a fun scenario and you’re not going to be happy later as a client.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Is there any rules though or anything like let’s say they did have a house fire and they can legitimately prove that insurance claim is there any rules within the IRS that would help them?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah there are let’s talk about that after the break and things that can be substantiated even if you don’t have the documentation.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Sounds great you are listening to the IRS Solution Attorney show today’s topic is 15 Red Flags that could trigger an IRS Audit if we have time at the end of the break we will take your calls 888-404-1010 it will be the latter part of the show 888-404-1010 we will be back in a minute…<\/p>\n(Commercial break)<\/p>\n
KATRINA MADEWELL: <\/strong>\u00a0 Welcome back you are listening to the IRS Solution Attorney show with Mr. Darrin T. Mish, I’m your co-host Katrina Madewell today’s topic is 15 Red Flags that could trigger an IRS Audit.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 So before the break we were talking about things that that could be proven even if they weren’t…<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Well we were talking about like if someone got a notice to get audited and they said they can you help you me and oh I had a house fire, I don’t have anything…<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 That’s right so yeah<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 My question was does the IRS take exception to that but if you could prove look I’ve got an insurance claim my house really did burn down or I had a flood I really have nothing…<\/p>\nARRIN T. MISH: <\/strong>\u00a0Yeah but in that case I don’t think you are going to have a dispute with the IRS that you know the flood actually happened or that the fire actually happened but you\u00a0still run\u00a0in\u00a0the problem of ok how do we substantiate these deductions that you take, that you took, you\u00a0don\u2019t get just a free\u00a0pass\u00a0oh sorry that’s terrible your house is burned down we are just going to go with it, you know let the audit go, no that’s not how it works.\u00a0 I wish it did that would be great.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Well that is why I was asking if there is a provision in the law that allowed for that.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 I think it would encourage arson but.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 You could have a very legitimate point on that one Darrin.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Audit notice equals you know house\u00a0fire..<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 See I have\u00a0way\u00a0to much paper already so it all gets mailed off in that little blue envelope every month.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah exactly so what happens is there is a rule called the Cohan rule,\u00a0 I’m saying that for a case that was decided back in the 30’s and basically it stands for the proposition that if you have expenses or deductions that are obviously part of your business or enterprise that you are engaged in then you may be given some reasonable allowance even if you can’t substantiate them so let me give you an example:\u00a0 At my office you know I have a standalone office building and the utilities are not included and I obviously write off the electricity bill right because without electricity what happens?<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 You can’t turn on the computer.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yes we are sitting in the dark and if you are really hot or really cold and in a conference room and we can’t get anything done you know everybody would have to use pen and paper and it just wouldn’t work.\u00a0Obviously\u00a0electricity for most businesses is going to be an expense that you are not going to have to prove with any high degree of certainty happen because it’s kind of obvious that it happened. \u00a0A real estate agent is going to be entitled to some mileage\u00a0because\u00a0you’re going to have some showings\u00a0you\u2019re\u00a0going to have some driving, you’re probably not going to get what you claimed but you are going to get something.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 The only consistency from one year to the next?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Maybe that could be a pretty good argument but not necessarily.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 It’s all in the logistics I’m sure right?<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah there is a lot of details that go on here and so we are going to have at that point the argument of well was it the electric bill you know $300 a month or was it $500 a month<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0Right<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 So the IRS is probably always going to come down on the lower end and the taxpayer is going to want to come out on the higher end.<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 Of course, and that is where you come in the middle I suppose.<\/p>\nDARRIN T. MISH: <\/strong>\u00a0 Yeah and we try and get it worked out<\/p>\nKATRINA MADEWELL: <\/strong>\u00a0 So number 9 is no health insurance, we talked\u00a0about this with those lovely penalties.<\/p>\n
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