Issue link: https://www.massageandbodyworkdigital.com/i/70065
WHEN THE IRS CALLS remember if I had seen it, thrown it away, filed it, filed it incorrectly, written it down, or if the cat shredded it. It was confusing, but I'm glad I did it in stages, little by little. This is not the time to cram everything in the last few days. I definitely underestimated how long this process would take. Even with three months to prepare, I found myself scrambling a bit at the end. THE DREADED DAY The day of the audit, I saw one nursing- home client in the morning and then met Ernie at my house to review before the 1:30 meeting. His goal was to prep me to answer questions, as well as review the basic procedures and time line of the IRS meeting. Ernie said the first thing the IRS would do is ask general questions and get basic background on us and our businesses, proving we are legitimate. My husband is a writer and had a loss that year so we figured we'd have to defend that he was an actual for-profit business and not a hobby. The IRS has specific rules about how many years you can claim a loss before it raises red flags (consult your accountant for more details). The auditor would want to look at bank statements, followed by receipts— typically starting with large ones or ones that are commonly disallowed, like meals, gifts, and travel. Remember to only count business meals at 50 percent and that clothing, other than uniforms, is not an allowable expense. Check with your accountant for specific details on what is an acceptable deduction. Here's a very important note— do not make things up you can't substantiate. If you don't have a valid receipt, don't make up expenses. This is why it's important to make sure you keep all business receipts. Or, if it's a small amount that you wouldn't get a receipt for like parking meter money, make sure you write down Tax Tips • Know your bank's policies on, and associated charges for, retrieving records. • Don't try to hide income or make up expenses you can't support. Dishonesty will come back to haunt you. • If you are audited and find that you made a mistake, admitting it up front is the best idea. Don't go in hoping they won't notice it. They will. • If you are solely an employee of someone else, you are less likely to be audited, but that doesn't mean you should be any less diligent with your records and returns. • If you're faced with an audit, try to be calm and organized. Don't go in acting as if the IRS is the bad guy and unfairly targeting you. It will get you nowhere. • If you trade for services, know that this must be reported as income. • Keep a separate business bank account or, at the very least, track all of your deposits and determine if they are business or personal. • Make sure to keep track of your business mileage in a log or notebook, noting the starting and ending odometer reading at the beginning and end of the year. the details and the dates in a journal or notebook. Keep really good track of your income and don't try to hide money. Dishonesty will inevitably come back to haunt you. There are allowable expenses in place to reduce our tax burden. Take them; it's your right as a business owner. But only take what is legal and allowable and make sure you have records to back everything up. When I told other massage therapists about my audit, they shuddered in fear and told me they have horrible records, don't keep any receipts, and have no idea of their income. Bad idea—don't be one of those people. And don't be one of those people who thinks it couldn't happen to you. It can. 64 massage & bodywork november/december 2010