12/27/2021
PREVENT A SCHEDULE C AUDIT TIPS:
💰💰CASH PAYING CLIENTS
You can’t just have them sign a form saying they are self employed , enter the income and expenses. Etc, it’s not gonna hold up in an audit❗️
HOW TO RECONSTRUCT RECORDS
Step 1: prove they performed the busines
Do they have a business card, flyer, business presence (social media, etc) , EIN number, business bank account , business license, address for the business. No you don’t have to retain every piece of information, but it’s the fact that you ASKED and you make a note of it.
Step 2: be able to show how you came up with the figures if they don’t have records
Example, let’s say we have a cosmetologist you can ask them their price list, how many clients they serve per day, week or per month and then on average how much you spend per client and per month on operating the business.
So after viewing the price list, the average is $90 per head and they do 8 a week thats $720 a week, $2,800 a month, roughly $34k gross income. Auditors can clearly see how we came up with this figure and the rationale behind it.
But how to prove the clients they serve? Do they have a booking link like styleseat , acuity, are they old school and have an appointment book. ??
For the expenses, ask them how and where do you see your clients (in a booth I pay $100 weekly), do you buy the supplies or do they do (I do, okay write down all the supplies and their approx costs) how do you communicate with them (cell phone and my acuity app)
Then step 3: Do your Due Diligence | THIS IS YOUR BEST LINE OF DEFENSE AGAINST AN AUDIT, MAKE IT COUNT!
In your software your Due diligence notes would be :
Taxpayer presented as a self employed beautician and showed evidence of business presence through social media, Google search, business cards, cosmetology license, booth rental lease and business license.
Client does not keep records in an accounting software as all her clients pays in cash so the income and expenses were reconstructed for 2021.
Taxpayer services roughly 8 clients per week (as per her appointment scheduling app) and on average the tax payer was paid $90 a client. Which resulted in the $34k in reconstructed gross income.
Her expenses totaled (let’s just say $10k) and it was backed by booth rent lease, supply receipts, bank statements, and invoices which taxpayer can present in the event of an audit.
Hope this helps! No audits formed against us shall prosper 🤣🤣 naw fr!
PREVENT A SCHEDULE C AUDIT TIPS:
💰💰CASH PAYING CLIENTS
You can’t just have them sign a form saying they are self employed , enter the income and expenses. Etc, it’s not gonna hold up in an audit❗️
HOW TO RECONSTRUCT RECORDS
Step 1: prove they performed the busines
Do they have a business card, flyer, business presence (social media, etc) , EIN number, business bank account , business license, address for the business. No you don’t have to retain every piece of information, but it’s the fact that you ASKED and you make a note of it.
Step 2: be able to show how you came up with the figures if they don’t have records
Example, let’s say we have a cosmetologist you can ask them their price list, how many clients they serve per day, week or per month and then on average how much you spend per client and per month on operating the business.
So after viewing the price list, the average is $90 per head and they do 8 a week thats $720 a week, $2,800 a month, roughly $34k gross income. Auditors can clearly see how we came up with this figure and the rationale behind it.
But how to prove the clients they serve? Do they have a booking link like styleseat , acuity, are they old school and have an appointment book. ??
For the expenses, ask them how and where do you see your clients (in a booth I pay $100 weekly), do you buy the supplies or do they do (I do, okay write down all the supplies and their approx costs) how do you communicate with them (cell phone and my acuity app)
Then step 3: Do your Due Diligence | THIS IS YOUR BEST LINE OF DEFENSE AGAINST AN AUDIT, MAKE IT COUNT!
In your software your Due diligence notes would be :
Taxpayer presented as a self employed beautician and showed evidence of business presence through social media, Google search, business cards, cosmetology license, booth rental lease and business license.
Client does not keep records in an accounting software as all her clients pays in cash so the income and expenses were reconstructed for 2021.
Taxpayer services roughly 8 clients per week (as per her appointment scheduling app) and on average the tax payer was paid $90 a client. Which resulted in the $34k in reconstructed gross income.
Her expenses totaled (let’s just say $10k) and it was backed by booth rent lease, supply receipts, bank statements, and invoices which taxpayer can present in the event of an audit.
Hope this helps! No audits formed against us shall prosper 🤣🤣 naw fr!
