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ways to generate tax write offs

     
8:50 pm on Jan 4, 2007 (gmt 0)

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I've been looking at ways to generate expenses for my adsense biz inorder to pay less taxes at then end of the year. I've been told that if you lease your primary car and then advertise your website on the car you can write off the lease payments as a business expense. I haven't discussed this with my accountant yet but I wanted to see what eveyone here thought about it first.
9:16 pm on Jan 4, 2007 (gmt 0)

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You can probably write-off the cost of repainting the door when you ruin it. That, and the cost of the sign.
9:40 pm on Jan 4, 2007 (gmt 0)

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been told that if you ...

Find the person who told you that and slap him silly.

If you want tax advice, talk to your accountant.

4:27 am on Jan 5, 2007 (gmt 0)

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Do not mess with the IRS.

When in doubt, don't try to write off questionable expenses.

2007 will be my 20th year in business. I had a small IRS audit for the first year, which I sailed through. My wife keeps perfect books, and is extremely organized.

The next audit was for the year 1990. I had an auditor in my office for three straight days. And I couldn't do any work, because he had a question for me every five minutes.

That audit cost me a lot of lost revenue.

Plus, I've had audits from the state level.

On every single audit, I came out with a clean bill of health, and the auditors reported no problems.

But, it took weeks to prepare for the major ones.

Is it worth that amount of time to save a few dollars on your taxes?

8:39 am on Jan 5, 2007 (gmt 0)

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>Do not mess with the IRS.

Dick is right, mess with everyone, but don't mess with the IRS......they have no heart, or sence of humor!

They are just a bunch of evil pencil pushers!

The tax code has lots of ways for you to write off tax in a legal way.....use those!

If you have a problem reading 83,000 pages of junk then you need to employ a guy that finds that kind of stuff fun.....they are called accountants :)

5:54 pm on Jan 5, 2007 (gmt 0)

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There is a reason he IRS is so heartless - if they weren't, people would go around trying to take deductions for all their auto expenses when they put a sign with the URL on it...

The red flag here is the term "generate expenses". At first, it didn't make sense, as I thought the poster was trying to figure-out ways to spend more money!

You don't "generate" expenses - that would be foolish. You "incur" them. You want to generate expense claims.

6:05 pm on Jan 5, 2007 (gmt 0)

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I am not sure what else this business does, but in my case I have several revenue streams and hence expenses used to generate that revenue. If you also do web development and perhaps consulting as part of this same business you can write off the expenses incured for doing that against revenue generated on the adsense.

I have one company (LLC) and it does several different things and at the end of the year all revenue and all expenses in that business are balanced against each other.

I would concur with everyone else, don't screw around with the IRS, they are indeed heartless and totally unforgiving for ANY mistakes. Keep perfect records and don't do anything that is questionable in terms of deductions because an audit, even if you win, is a losing proposition no matter how it comes out when you figure your lost time.

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6:42 pm on Jan 5, 2007 (gmt 0)

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I've been told that if you lease your primary car and then advertise your website on the car you can write off the lease payments as a business expense.

No. The only way you could write off the entire lease payment is if the vehicle is used 100% for business-use only. It would also cause less of a flag if the lease is in the business name and not your personal name.

Either way, you can write off the cost of the advertising.

One of the top 10 reasons self-employed, and small business are audited:

"Did you write off automobile expenses for travel that was not business-related?"
Source: Nolo . com

11:46 pm on Jan 5, 2007 (gmt 0)

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Here's the really fun thing about IRS audits: the auditors are not told what to look for. The reason is that the IRS doesn't want the auditors to find the problem and then stop. They want their auditors to go through everything and find anything they can.

This was what the auditor who was in my office for three days told me. He had no idea what he was looking for.

He also went through our personal bank accounts, even though he was auditing my corporation. He found a deposit of $25 from "Joanne," and asked me what that was. I explained that Joanne is my mother-in-law, and she borrowed $25 from us because she was tight on cash until payday. I then showed him the check we had written to said mother in law two weeks prior.

Remember, the government doesn't run out of time or money, so decide for yourself if you want to go through that ordeal.

The only positive from that audit was the letter the auditor wrote for me, saying that my company had now been audited twice, had come up clean, and shouldn't be bothered anymore.

12:06 am on Jan 6, 2007 (gmt 0)

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another point worth noting is that not even the IRS ( or your local variant of it )..messes around with customs officers ( cos they dont have to knock ..can arrive in the night ..and dont have to clear up afterwards ) ..and can hold you for much longer while they look for whatever they think you might have done .. :)
12:07 am on Jan 6, 2007 (gmt 0)

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Actually, when you are audited, it's usually very specific what is being audited. If the auditor somehow comes across something outside the scope of the audit, he/she does not have the authority to automatically bring that into the audit.

The reality is that the auditors do not have an infinite amount of time to spend on each case. (If this were the case, EVERYONE would be audited every year.) They and the IRS know that they are usually not going to find every possible item wrong. But they have a good idea of where the line of diminishing returns lies. They aren't going to spend another 5 hours to try to find another $10 that they think you owe the IRS.

What the auditor told dickbaker was a load of crap- either to try to get him to fear the IRS as an all-powerful entity or (more likely) to hide his inability to do an audit efficiently. (If I had an auditor who wanted to go through my personal bank accounts when the company was being audited, I would be on the phone to his branch manager and be threatening to call my lawyer the second I hung up if the auditor wasn't immediately taken off my case and disciplined.) dickbaker's case shows exactly why you should never go through a tax audit without a professional tax preparer. Otherwise, you are most likely to believe whatever load of bull the auditor thinks he can get away with loading on you.

[edited by: LifeinAsia at 12:09 am (utc) on Jan. 6, 2007]

4:02 am on Jan 6, 2007 (gmt 0)

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LifeinAsia, you and I obviously have had different experiences.

As I mentioned in my first post, I've had two IRS audits, a couple of state audits, and at least three unemployment compensation division audits.

With every audit, I had my CPA ready to come to my aid if need be. I found it much easier to just cooperate.

Like I said, the government doesn't run out of money or time.

If you want to hear some real stories, talk to the owners of gun stores. When the Bureau of Alcohol, Tobacco, Firearms and Explosives wants to look at the books, you don't say "no." They don't just show up with pencils.

6:59 am on Jan 6, 2007 (gmt 0)

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ways to generate tax write offs

My Best Tips -

Set up your own retirement plan with an actuary. It is truly amazing what you can tax defer with a knowledgeable actuary and a custom plan. Plus, you save on the admin fees compared to the prototype plans offered by the investment companies because you are the plan administrator.

Hire your kids.
[moneycentral.msn.com ]
Their salaries are a tax deduction for you, and you can have them contribute all of the money they earn to the 401K plan you set up (up to $15K a child per year plus profit sharing). Then when they are older, they can roll the money into an IRA and then withdraw it penalty free for college expenses or to buy a first home.

My main suggestion would be to not assume that most accountants will advise you on the finer points of tax savings for your particular business and family situation. I've had a hard time even finding anyone able to do my returns properly, let alone suggest anything like I described above.

A couple of years ago I was disappointed with the quality of advice I was getting from the accountants and financial advisors I talked to, so I bought about $500 worth of business and tax books from Amazon. Those books were the best return on investment I ever made in my life. Plus, the books were a tax deductible expense.

[edited by: Jane_Doe at 7:00 am (utc) on Jan. 6, 2007]

7:15 am on Jan 6, 2007 (gmt 0)

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"Plus, the books were a tax deductible expense."

Now, THAT is irony. ;)

7:39 am on Jan 6, 2007 (gmt 0)

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Here's the mindset you're up against...

Publication 17
Your Federal Income Tax
For Individuals Preparing 2006 Returns

(page 90 under Other Income...)

"Stolen property
If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner."

4:37 pm on Jan 6, 2007 (gmt 0)

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There are a couple of people here with different versions of what the IRS can and can't do, which only magnifies the terror, confusion, and power they can exert over you. I agree with Asia that IRS agents must show results for their work, they can't simply go on forever, unless they smell blood. If they think you are resisting or hiding enough assets or income to make it worth the time they can and will bring the full and never-ending power of the U.S. government to bear on you.

Rather than belabor this point I would simply say have a tax attorney and CPA ready, keep solid records and be cooperative, but question everything and be fair but firm with them. If they think they can push they will.

I would also suggest a book...

"Lower Your Taxes" by Sandy Botkin

This is one of the best books I have found on lowering taxes. The author is a CPA and attorney and used to be responsible for training IRS auditors. His book tells you great tax deductions, but more importantly how to backstop them with good records and defend them in an audit. Great book!

Fortune Hunter

11:40 pm on Jan 6, 2007 (gmt 0)

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LifeinAsia: "The reality is that the auditors do not have an infinite amount of time to spend on each case."

I got to thinking about your post again today, and recalled something that may make you change your opinion.

Following the 1994 elections, there were about a dozen organizations who were audited. (I don't want to make this political, so I'll just leave it at that).

The National Rifle Association was one of those organizations. And the audit lasted two years.

Two years may not be infinity, but when it comes to audits, it sure comes close.

There's no way of avoiding an audit completely. The IRS conducts random audits all the time.

If you find yourself in the position of being audited, be very prepared. Make copies of all relevant invoices, statements, bills, etc, and put them in their respective folders. Provide these copies to the auditor for his convenience. (A little cooperation and respect goes a long way).

Keep organized, accurate records, as it will make your job easier when you have to prepare for an audit. My wife and I spent three solid weekends preparing for our last audit, despite the fact that she's one of the most organized people I know. At that time, our business did over half a million in sales annually, so there was a lot of paperwork to go through.

5:29 am on Jan 7, 2007 (gmt 0)

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"Stolen property
If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner."

That's done to fight organized crime. Not because the government consists of complete retards.

If you can't prove how you've aquired something, then you must have stolen it. And if no one presses charges or at least claims that what you've stolen, then there is no way to prosecute you... except for not paying taxes on it.

5:11 pm on Jan 8, 2007 (gmt 0)

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LifeinAsia, you and I obviously have had different experiences.

True- I've never been personally audited. However, I did work in my parents' tax business for 2 years and they went through several audits on behalf of clients. My mother also worked for the IRS for over 10 years, leaving when she was a group manager. So they know full well that auditors (as well as the government behind them) do not have infinite time or money to spend. Auditors (as well as their managers up the food chain) are rated and receive raises/bonuses according to the results produced. They're not going to spend another 3 days trying to find another couple of thousand dolalrs "hidden" when they can move on to another audit and find the same amount in 10 minutes. Yes, if they have a very good reason to suspect that the hidden money may be millions of dollars, then they'll probably keep pushing.

I never said anything about not cooperating- I'm talking about not being pushed around by someone pushing past the boundaries of what is allowed. (And ATF and IRS are not the same agencies, not do they conduct audits the same way.)

4:08 am on Jan 9, 2007 (gmt 0)

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LifeinAsia, thanks for your reply.

It sounds like I just got an auditor who was too aggressive.

"ATF and IRS are not the same agencies, not do they conduct audits the same way."

Oh, yeah. But that's a subject for a different forum than Webmaster World. ;)

6:15 am on Jan 10, 2007 (gmt 0)

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Upgrade your equipment, donate the old stuff to the right place.
3:14 pm on Jan 10, 2007 (gmt 0)

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donate the old stuff to the right place.

What constitutes the "right place"? I have some computers that need getting rid of and I want to upgrade them to some new stuff.

Fortune Hunter

3:57 pm on Jan 10, 2007 (gmt 0)

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donate the old stuff to the right place.

What constitutes the "right place"?

In the U.S., to a non-profit organization listed in IRS Publication 78 (also searchable online at irs.gov, "search for charities") as well as to churches, synagogues, mosques, etc. or government agencies.

The problem is finding somebody who will ACCEPT used computer gear. Your best bet is to find somebody who will actually USE it. Many orgnizations such as Goodwill, Salvation Army, etc. won't take it any more, or restrict what they will take (no CRT monitors).

4:51 pm on Jan 10, 2007 (gmt 0)

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donate the old stuff to the right place.

The other issue is that if it's old, chances are that it's been fully depreciated already, so has no remaining book value. If it hasn't been fully depreciated, the only writeoff you'd get would be the remaining book value. (And if you ever took accelerated depreciation on the item, you'd have the depreciation recapture issue to eat away at any writeoff value.)
4:52 am on Jan 11, 2007 (gmt 0)

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The other issue is that if it's old, chances are that it's been fully depreciated already

For most of us here, it probably wouldn't even have been depreciated - most likely would have been taken as a Section 179 Expense.

4:44 pm on Jan 11, 2007 (gmt 0)

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most likely would have been taken as a Section 179 Expense.

This IS depreciation, just accelerated depreciation. So assuming you Section 179ed the whole amount, the value of the item is 0. Thus, 0 value (except for the warm fuzzy feeling for donating it to charity) for donating to charity.
5:22 pm on Jan 11, 2007 (gmt 0)

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So assuming you Section 179ed the whole amount, the value of the item is 0.

Exactly. Sorry if I wasn't clear. My point is that most of us actually gain no tax advantage by donating our used equipment.

This IS depreciation, just accelerated depreciation.

Not really. It's treated as an expense, subtracted from income. Same difference, as far as donations go. You can't take a deduction for donating it, because it's already been claimed as an expense.

6:26 pm on Jan 11, 2007 (gmt 0)

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Well, short-term the effects are the same (although the "expense" is reflected on the depreciation form and should remain there until the asset is properly disposed of), but it's a dangerous way of thinking about things. For computers, office furniture, and other things that you will probably continue to use long after the depreciation schedule's "useful life" period, it's not that much of an issue.

But what about that company car that you decide to trade in after 3 years (true, most people can't Section 179 all of it, but a lot of people do buy Hummers so they can take a bigger depreciation deduction)? Or that new printing press that you decide to replace after 2 years because you need the latest model, and you decide to sell the old model to a friend fo yours. Or you decide to upgrade your computer after a year and sell the old one on E-bay.

You have to properly account for the asset disposal and probably deal with depreciation recapture, since you deducted more than you were actually entitles to.

Oh, and let's not even get started on the way to properly account for donating inventory! :)

 

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