Quote:
|
Originally Posted by Cannon Shell
Schedule C. Unfortunately for the self-employed, just filing Schedule C may be the biggest red flag of all. Consider these figures. Normally, if you earn between $50,000 and $100,000, your chance of being audited is about one in 100. File schedule C, with about the same income, and the odds nearly double to a frightening one in 50. "If you're self-employed, it's very hard to avoid an audit," says Renn. "It's almost guaranteed that if you file Schedule C long enough, you'll get audited."
Experts agree that the IRS carefully scrutinizes Schedule C. Among the agency 's favorite red flags here: A too-small bottom line. A large discrepancy between gross and net income may arouse suspicions of expense padding or improper deductions. The IRS is particularly likely to challenge travel and entertainment expenses and home offices (more on this below), so make sure your documentation is good.
Running in the red - a negative bottom line - is a sure attention grabber, particularly if it continues for several years. Generally, if your business loses money three (or more) out of five consecutive years, the IRS will assume it's just a hobby. In that case, you can deduct expenses only up to the amount you earned. This doesn't mean that you can never take a deduction for a persistent money loser - but the onus is on you to prove that it's a legitimate business. Di Re suggests fortifying your case with a business plan, careful records, and business bank accounts separate from your personal accounts. "Do everything in as business-like manner as possible," Di Re advises
|
CS, this is apparently quoted from some article. What was it?
I agree with some of the article. Filing a Sch. C probably ups your audit chances. But it is hardly a "frightening" prospect. I've been filing a Sch. C for my gambling biz for at least 15 years and have yet to be audited, despite several other oddities and red flags in some of those years. (most notably, 3 years where my joint return used the Foreign Earned Income Credit). I'm also in contact with dozens of other pros who use Sch. C, and audits are rare events. (More often someone will have trouble with his/her state return.) Most serious players do keep fairly meticulous records, so the rare audit usually has a favorable result.
Being a racehorse owner may be an entirely different matter. If a business consistently loses money, then continuing to file a Sch. C would probably invite scrutiny sooner or later.
--Dunbar