Self-Employment Tax Question: Business Expenses

[retire@40]

Quote:

Originally Posted by Helena How does the IRS know what those unclaimed deductions are ?

There are certain deductions that come with any business, and the IRS knows which expenses each type of business should have and sometimes they even have an idea, within a range, how much each expense should be as a percentage of sales.

The bottom line is this: Most people, especially most people who have enough brains to start their own business, are not stupid enough not to deduct legitimate business expenses to keep their taxes as low as possible. You know this and the IRS knows this.

So if the IRS sees a situation where someone intentionally omits legal deductions, they will look into the alternative motives for doing so.

If you did it to defraud the government in any way, they will adjust your tax return to correct your deception. You cannot manipulate your net income to benefit from some of the items you mentioned in your earlier post, such as funding your IRA, or trying to cheat the system to get the EIC. There are also a number of non-tax reasons it will be considered fraud. For example, if you need to provide your tax return to a bank for purposes of securing a loan or if you need to show you have enough income to support a child in a custody battle.

[Helena]

Quote:

Originally Posted by RetireeRobert Are you advocating filing a false tax return misstating actual income in order to gain social security or retirement contribution advantages because the IRS "may" not catch you?

I am not advocating anything... I am asking questions... is that allowed ?

I retired mid-year and have been self-employed for a few months...
I'm in the process of learning.

Many thanks to those who gave me informative responses... that does not include you, Robert

[retire@40]

Quote:

Originally Posted by Helena No, I don't use a business checking account. I don't have an office. I make no product... I do no buying or selling... I render a personal service via contract and my income is reported to the IRS via a 1099-Misc.

Well, if you have no business expenses to deduct, what expenses are you worried about not reporting?

Are you sure you are an independent contractor and not an employee?

[Helena]

Quote:

Originally Posted by retire@40 There are certain deductions that come with any business, and the IRS knows which expenses each type of business should have and sometimes they even have an idea, within a range, how much each expense should be as a percentage of sales.

As I said, I don't make or sell a product.

But I would be interested in having a copy of what the IRS
thinks I should deduct as expenses for my specific service...
it would really help a newbie like me.... I wonder if the IRS
will share that info ?

[RetireeRobert]

Quote:

Originally Posted by Helena I am not advocating anything... I am asking questions... is that allowed ? I retired mid-year and have been self-employed for a few months... I'm in the process of learning. Many thanks to those who gave me informative responses... that does not include you, Robert

Questions are allowed on my part. But you take offense at my question to you?:confused:

Just wondered why you wondered "well, how would the IRS know?" If filing an accurate tax return is a foregone conclusion, then wondering "how would the IRS know" seems kind of irrelevent. That's all.

Sorry you find questions to you unhelpful.

[Helena]

Quote:

Originally Posted by retire@40 Well, if you have no business expenses to deduct, what expenses are you worried about not reporting? Are you sure you are an independent contractor and not an employee?

I am not an employee. I am an independent service provider.
I may not have any business expenses to deduct... but from
what I've been told here... heaven help me if I miss one !


What ? Me worry ? Seems to me there is more than enough
of that here... but I am not worried... I am just asking questions.

[RetireeRobert]

Quote:

Originally Posted by Helena I am not an employee. I am an independent service provider. I may not have any business expenses to deduct... but from what I've been told here... heaven help me if I miss one ! What ? Me worry ? Seems to me there is more than enough of that here... but I am not worried... I am just asking questions.

PS---I ran a part-time tax practice for many years, and I prided myself on preparing the most accurate tax returns possible for my clients. Much of my success was due to my "questioning" style. I am now a happily retired CPA.

I can tell you would not have enjoyed being a client of mine.

[retire@40]

Quote:

Originally Posted by Helena I am not an employee. I am an independent service provider. I may not have any business expenses to deduct... but from what I've been told here... heaven help me if I miss one !

What cash expenditures would you not have if you didn't do any independent work?

If they are ordinary and necessary in the course of your work, they are probably deductible and should be reported on your tax return.

One other thing to consider is "materiality." The IRS won't be too concerned if you don't deduct your 35-cent pencil and your 75-cent notepad.

[Helena]

Quote:

Originally Posted by RetireeRobert PS---I ran a part-time tax practice for many years, and I prided myself on preparing the most accurate tax returns possible for my clients. Much of my success was due to my "questioning" style. I am now a happily retired CPA. I can tell you would not have enjoyed being a client of mine.

My family escaped the bolsheviks...
not much scares me.

[RetireeRobert]

Quote:

Originally Posted by Helena My family escaped the bolsheviks...

Really. Interesting times those. Care to tell more of that bit of history?

[Helena]

Quote:

Originally Posted by RetireeRobert Really. Interesting times those. Care to tell more of that bit of history?

Only this:

Since my family had migrated to Russia from Germany during the
reign of Tsar Peter [the Great], many of them left for Germany...
some then went on to the USA... many of those who remained in
Germany found themselves back under bolshevik rule after WW 2 !

I was born in Texas... Texans are very much like Cossacks...
fierce and independent... at least, they used to be that way.

[RetireeRobert]

Quote:

Originally Posted by Helena Only this: Since my family had migrated to Russia from Germany during the reign of Tsar Peter [the Great], many of them left for Germany... some then went on to the USA... many of those who remained in Germany found themselves back under bolshevik rule after WW 2 ! I was born in Texas... Texans are very much like Cossacks... fierce and independent... at least, they used to be that way.

Interesting. My wife's grandmother was also a German who moved to Russia, and eventually to the US. I am not sure of the timeframe, but since my wife's mom was born in the US in 1915, then the German grandma could have been in Russia perhaps in the 1890's-1910 timeframe. I'll have to ask about that.