The Internal Revenue Service is cautioning the
public about promoters who are selling the concept that taxpayers
can operate any type of unprofitable "business" out of
their home and claim personal expenses as business expenses. Taxpayers
should be wary of these programs.
These schemes have gained popularity for a variety
of reasons, including:
- The desire of individuals to reduce the amount of taxes they
pay.
- Unscrupulous promoters, selling tax avoidance and audit assistance
packages.
- Taxpayers being advised they can deduct all or most of their
home and other personal assets as business expenses.
Most taxpayers with home-based businesses accurately
report their income and expenses, while enjoying the benefits that
a home-based business can offer. However, some individuals have
received advice that they can operate any type of unprofitable "business"
out of their home and claim personal expenses as business expenses.
Non-deductible personal living expenses cannot be transformed into
deductible business expenses regardless of how convincing the information
in marketing materials may seem.
The following are a few examples of items that
are generally not deductible as business expenses:
- Deducting all or most of the cost and operation of a personal
residence. For example, placing a calendar, desk, file cabinet,
telephone, or some other business-related item in each room does
not increase the amount that can be deducted.
- Paying children a salary (e.g. for answering telephones, washing
cars, etc.).
- Deducting education expenses from salaries paid to children
wrongfully claimed as employees.
- Deducting excessive car and truck expenses when the vehicle
was used for both personal and business use.
- Deducting personal furniture, home entertainment equipment,
children's toys, etc.
- Deducting personal travel, meals, and entertainment under the
guise that everyone is a potential client.
Any investment scheme or promotion that claims
to allow a person to deduct what would normally be personal expenses,
and not ordinary and necessary business expenses, should be considered
highly suspect. As always, a business must truly exist prior to
claiming expenses.
Stay tuned for the next article in the Abusive
Schemes Program Headliner Series.
Credit:
For further information, visit the Criminal Investigation web site
at: http://www.irs.gov/irs/content/0,,id=106057,00.html
or the IRS web site at: www.irs.gov.
If you have specific questions on a tax scheme or wish to report
a possible scheme, call 1-866-775-7474 or send an e-mail to: irs.tax.shelter.hotline@irs.gov
Related
Information:
NBA
Benefit Provider - IRS
- Small Business and Self Employed Community
NBA
Resource Article - Abusive
Scheme Strategy
NBA
Resource Article - Amended
Returns
Reprint of this article does not constitute an
endorsement by the National Business Association; the article is
for informational purposes for our members and viewers of our Web
site.
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