When it comes to tax deductions, there are a few schools of thoughts. There are the people who want to write off everything, whether it’s legal or not, and figure the cost of an IRS audit won’t be that bad. Or else they think they can’t ever get caught. They are invisible, or so they think. That’s group number one.
The second group is the group who doesn’t want to write anything off. In fact, I’ve had some clients who tell me at the beginning of a consultation that they want to purposely overpay their taxes. If the tax due is $10,000, they’ll write a check for $11,000. They figure that will keep the IRS away. The IRS doesn’t take bribes. This plan doesn’t work.
The third group I talk to is comprised of people who want to pay less in tax, but they are cautious. They still want to sleep at night.
Here are four steps for writing off practically anything. If you want to skip the steps and see how you really can write off practically anything (and still sleep at night), scroll down and read the story of the husband who wanted to figure out a way to deduct his wife’s expense shoe habit.
Step #1: You Must Have a Business
If you’ve been running a tax loss in your business after you take all of your deductions, you could run the risk of the IRS calling your business a hobby. If you have a hobby, you can’t take the deductions.
Step #2: The Expense Must Have a Business Purpose
The expense must be ordinary and necessary to the production of income. But, that’s about all the guidance you’re going to get. And that’s the reason why so many people get stuck especially in the beginning. What’s deductible? It depends!
Step #3: You Must Have Proof You Paid the Expense
This is pretty much a no brainer. No receipt = no deduction. When you’re out and about, use your smart phone to take a picture of receipts. It’s a whole lot easier to keep track of pictures than it is loose slips of paper. If you paid for the deduction with cash, check or credit, you’ve got the deduction.
Step #4: Make Sure You Properly Report it on Your Tax Return
There are three steps to a successful tax strategy. Strategy – Implementation – Reporting the tax return is the final part of a strategy.
I was speaking at a seminar with some big rock stars in the Internet marketing world. One man had created a successful business by using websites to find and enroll people in his various MLMs. He knew how to make money, but he didn’t know how to take all the deductions he needed. When I asked the audience what was the one expense they really wish they knew how to write off, he shouted out, “My wife’s shoes!”
How about you? Do you have something you really wish you could take a write-off for?
If you are looking to increase your write offs, join me at the FREE AOA Trade Show and Landlording Conference on Wednesday, May 24th at the Long Beach Convention Center where I will be speaking in details on this topic. You, too, can write off some of your expensive habits! I will teach you how to write off almost anything and how to make that sure it is IRS proof.
Karla Dennis is an expert tax and business strategist. As an enrolled agent, Karla is licensed to represent taxpayers in all 50 states. She holds a Masters in Taxation and Business Development and is the author of two books, Tax Storm and Against the Odds. Karla, CEO of consultancy firm Karla Dennis & Associates, has saved her clients thousands of dollars and has been featured in various media outlets such as Forbes, MSNBC, KTLA, Yahoo! Finance, and SmartMoney, marking her as the ultimate tax expert. For more information, email [email protected].