Teders - Protect Yourself from Audit

Protect Yourself from Audit

As A self-Employed Person:

Use a separate business checking account (preferably with cancelled checks returned or photocopied)
Pay all business expenses by business check or business credit card and keep all receipts
Do NOT co-mingle business expenses with personal expenses
Devote the business credit card to be strictly business
Photocopy and label all deposits in ALL business and personal bank and financial accounts

All Business Expenses MUST:

Have a Business Purpose and Relationship
Be Ordinary and Necessary for your business or industry

Sub-Contract Labor:

If you pay a person or another company for anything other than purchase of product, you must issue them a Form 1099 at the end of the year. Exceptions are if you pay under $600 for the entire calendar year or if they are a corporation.

You must obtain their address and Social Security Number (or EIN if they are a partnership or LLC). The IRS has a Form W-9 for this purpose.

Do NOT pay CASH.

You should have them sign an Independent Contractor Agreement.

You can not maintain behavioral or financial control. You may need to review the twenty factors that are considered to determine if a person is an employee or an independent contractor.

Otherwise, the deduction may be denied, or you may be responsible for all payroll taxes, penalties, and interest.

Mileage:

You must keep a detailed mileage logbook, calendar, or appointment book that includes:

When - date and time, if applicable
Starting point - address of location began at, unless always the same
Stopping Points - address of location arrived at
Who you met with, and their title
Why you visited, what business was discussed or performed

Meals & Entertainment:

Keep the receipts to show:

Amount
Date
Place
Business Purpose
Name and/or Title of those attending

Gifts:

Same Requirements as Meals and Entertainment above, but limited to $25 per person, per year. You can give more, just not deduct it.

Do not use this article as a substitute for professional advice. The information in this article is intended to be only a general overview of the topic and may omit details that could be critical to your specific situation. Accordingly, this article should not be construed as rendering legal, tax, or other professional services. Please contact our office for more information on this topic and how it could affect your specific tax or financial situation.