Corporate Talk

This web site operates from the prospective that the user already has a business entity and the entity of choice is the S-corporation. While good business practices may apply to every business, the user must decide whether to use and how to apply the content found here. The authors cannot. As always, read all closely and think before you act.

Random Audacity

Here's lookin' at you...

The only approach for business taxes is to report all income and to declare only those deductions which actually apply. While all income must be reported, there is no penalty for under-reporting deductions. However, unlike losses, deductions do not carryover to the next tax year (topic for another day).

The IRS believes taxes due are grossly under reported. In that vein, the service has been randomly auditing S-corporations (tax year 2008) for non-compliance in a few general areas (compliance apparently bores them). One area of ongoing concern is owners withdrawing profits as dividends to avoid payroll taxes. DO NOT engage in this slight of hand; you will get stung. Penalties can be harsh.

Other areas of IRS interest for random audits in 2008 include: the manner in which tools and supplies are expensed, motor vehicle expenses, travel expenses, S-corporation status and “meals and entertainment”.

The latter deduction is a perennial favorite on the IRS hit list. It seems that it is routinely abused. The rules in this area are well established with little, if any, “wiggle room”. Learn the rules and follow them.

On the one hand, all of these costs can be legitimate business expenses; on the other, each is tempting to abuse. Understanding and applying the rules is not rocket science. Business expenses are legit deductions; personal expenses generally are not. Fore-thought, intention and documentation (more than just a receipt) may be required to justify what appears to be a personal expense (the CEO’s birthday party, for example) as an acceptable business deduction.

If confusion reigns, ask questions and get organized. Help is available: call JACS. When you need an outside professional, you can be pointed in the right direction.