Tax Time: ever been audited?

Ah, April 15th. Since I file a Schedule C, I’m worried that at some point-- through sheer statistics alone-- I’ll be audited.

Has anyone here been audited, and lived to tell the tale? What is it like?

Yup, It sucks. And I cut a deal to pay them monthly. But did avoid getting gang raped in the showers.

I’m not digging for dirt, I’m just curious how many people here have been audited. Supposedly the rate is 1% for “normal” taxfilers, and 4% for schedule c filers.

What’s schedule C used for? You can tell I’ve never filed one.

According to this, it was 1 in 173 last year, or .6%. The audit rate is way, way down from the past, because the IRS’s funding for enforcement suffered severe cuts in the 1990s.

I’ve had the IRS lady show up on my porch one morning. That surprisingly didn’t faze me. She didn’t audit me, but did personally go back through everything and work something out (we had a really shitty accountant). It was for portalofevil, which I made her keep saying as often as I could.

She has been to my house twice now, just a few weeks ago was her last and final visit.

Personal taxes scare me, corporate taxes while payroll is painful, are pretty simple - what came in - what went out - what was payroll. They didn’t care much about the detail.

How much did you try and claim? I had the feeling as long as I was inside some predetermined amount they could care less about receipts etc.


Wow, interesting. I had no idea the audit rates had dropped so precipitously. Guess I’ll stop worrying about that.

Schedule C is the business form, for sole proprietorship or small businesses. It’s a great deduction sink, but evidently the IRS is starting to discriminate between “hobby” (read: no hope or intent of profitability) and “business”. Try here:

Ah, BUSINESS PROFIT AND LOSS. Here is an estimator of potential for audit based on reported income and expenses.

That “calculator” is insane. Try typing in some different numbers and see what you get.

ah, that calculator above is from 98, so I wouldn’t start sweating over it. From the looks of it, back then it was bloody impossible to not be audited if your expenses were more than your income.

btw, what is your new business, wumpus?

lol, I noticed that. I believe it was an IRS plot–a psyops!–to make everyone scared to claim a loss.

This was our first year filing a Schedule C, as my wife started to get her scrapbooking/writing career off the ground. She lost money, but she hits almost all of the subjective criteria for proving profit motive so we’re pretty comfortable with our return. I never thought I would be happy to see a huge pile of receipts for scrapbooking supplies.

I think this guy should have used the 1998 “audit calculator” linked above.

On the other hand, he did get his refund. I’m not sure which is funnier.

I know one guy that got audited. He owned a gas station. He didn’t keep any financial books. He had two medium sized boxes, one marked income and the other marked expenses. He would just put the receipt or note in the proper box then totaled up each box at the end of the year. When he got audited he brought in the two boxes for the year. He dropped the two boxes on the auditors desk. The auditor asked to see his books. The auditor was told again that there were no books, just these two boxes filled with scraps of paper. The auditor told him to just take his boxes and leave. :p

I’ve been freelancing full time for around 5 years now and have filed Schedule C and used the home office deduction for the duration. Obviously it’s entirely legit as I work at home full time. Since the writing is on games, I deduct everything I purchase gaming related, etc etc. I’ve done well, so my expenses are usually between 20-30% of my business income. Likely barely a blip on the audit flag radar. Friends pressure me to expense more, especially in these harder times (logically it often requires more money to make more money) but I try to play it safe and keep it legal :)

I don’t know what the audit rates are, so it’s entirely possible that you can play it fast and loose and, statistically, be likely to get away with it. But I do know this: once the IRS starts coming after you for tax fraud, it’s often a world of pain and it can be very, very difficult (and expensive) to get them off your back. I have definitely seen people, both in my personal life and in my professional life, who knew they were skating on thin ice but figured they either wouldn’t get nailed or, if they did, that because they were basically decent folks who were just seeing what they could get away with / thought it might be legal / didn’t want to be the only sucker not taking all these deducitons, thought that they would be able to fix the problem before it blew up into something terrible. Let me just throw out the warning: not so. Screwing around on your taxes can be the sort of thing where, once it’s a problem, you CAN’T just say “Okay, okay, sorry, here’s the money and a little extra, let’s be done with it.” It’s the sort of thing where people sometimes have this slow realization about how much trouble they’ve gotten themselves in, and how much hell it’s going to wreak on their lives, and by then it’s too late to stop it.

That calculator is pretty stupid. It simply checks the percentage of your claimed income that you claim as expenses. Up to 58%, you’re ‘unlikely’, from there to 66 percent, you ‘may’ get audited, and 67% or above it’s ‘almost certain’.

Obviously the gross amounts involved are one obviously neglected factor. I doubt claiming $10 in income and $8 in expenses is ‘almost certainly’ going to get you audited, but $1,000,000 in income and $500,000 in expenses probably has a decent shot.

So are we saying my plans to review a few games on our website, write off a new $4,000 Alienware rig, and expense every game I purchase now until I die is not legal?

Well that’s not fair.

How long is that criteria list?

There’s a bunch of articles about it on the web, like this one

Could one of you guys who know’s what you’re talking about, :) answer me this? How does a write off work? I’ve been kicking around the idea of doing an on the side business from home for awhile now.

As a guitar player for the last 18 years I know my way around the instrument pretty well, and was thinking about doing a restoration type of thing on the side. Nothing serious, but just pursuing something I love and maybe making a few bucks off from it. I’ve bought a handfull of guitars through Ebay over the years and and after a bit of spit and polish I’ve managed to sell all of them for small profits.

How do business expense write off’s work? If I need to buy a digital camera so I can post pics of the guitars I’m selling, can I consider that a business expense? What if I buy a couple of guitars and end up not bing able to move them or at best only able to sell them for a loss, is that considered a write off?

Any advice would help, thanks.