Clarence - 10:51 pm on Dec 10, 2012 (gmt 0)
Not quite- you have to pay the taxes anyway, PLUS any interest and penalties. :)
If you claim $1,000 in Expenses, you save $150 (In US, under corp with 15% tax rate).
If the deduction is rejected you can Appeal.
If the Appeal doesn't work, you have to pay the $150.00 plus interest.
You can also request to negotiate the interest and have it reduce or completely eliminated.
So, at most you will pay a few years of interest on $150 dollars.
More then likely you won't even get audited.
I'll take the risk!
And Your expense must be super extreme to get denied, most of the time they will only approve Part.
So, the $1,000 is for Gas for a business car, and they reject it for a personal vehicle usages, and only allow you to deduct $500 dollars for business usage. So that means you owe the IRS $75 (Half of the $150) plus a few years interest.
And again you can negotiate "might not work" but you can try.
And if you feel the agent is really being to hard on you, you can go to Court.
If your expenses are really related to your business, then you shouldn't even worry!
But again I understand this mentality I've seen it 100's of times. When it come to the IRS some people think in complete FEAR.
I seen people register there C corp in their own state "with highers taxes and less asset protection" instead of Delaware, and not claim a ton of deduction out of fear of "WHAT", the IRS might do.
Then I see other people who do the research to see what's available and use everything they can, and even consult De-Tax consultants to save more.
Some people are bold and willing to take a chance, while some people are fearful and scared to take a chance.
They call it caution, I call it FEAR.
You see the same type of behavior with Google and Adsense.
Sorry for going off topic, I'm done posting.