Denver Small Business Tax Audit Risks
If you’re just starting out in business, or if you haven’t gotten around to it, talk to an accountant as soon as possible. For every Denver Small Business Tax Audit is a real risk. Some very common deductions are also audit risks. By putting off tax consultation, you may be setting yourself up for an audit and losing potential tax savings. Tax planning now can save you money later. It can also reduce your audit risk. Don’t get hit with penalties and interest, or overpay your taxes because you weren’t in the know. Consult with a professional before it’s too late.
Denver Tax Deductions for Automobile Expense
Keep a Mileage log. If you do any kind of driving for your business, this as an absolute must! The quickest way to IRS penalties is to guess on your business miles. You may think you have a $15,000 deduction because you drove 30,000 miles last year as you went on sales calls or traveled to clients. But unless you have written documentation, you had better think again. You may find yourself owning an extra $3,000 in late taxes, plus penalty and interest.
A couple of years ago some clowns (yes, they really were professional clowns) declared they had driven 3,000 miles a month in the service of clowning around at parties and functions. This lowered their tax bill by about $3,5000. The IRS thought they were clowning about on their taxes. The clowns found themselves driving an IRS auditor around town while he compared the miles driven to what they had claimed on various days. Not only was their mileage denied, they owed penalties and interest.
If you ever work at client sites, your mileage deduction may be substantial. It’s the kind of small expense that can grow during the year into a substantial sum. Do yourself a favor and buy a small pocket calendar to keep in the door of the car, along with a pen. Track every trip. And log the odometer at the beginning and end of every year.
Denver Business Mileage Rate per mile:
▪ 2016 – 53.5¢
Denver Small Business Deductions | Meals & Entertainment
**Beginning in 2018 – Entertainment is no longer deductible, only meals. Meals provided to employees to keep them working are no longer deductible starting in 2018.
As a rule, audits are not very entertaining. Yet that’s where you may be if you abuse the meals & entertainment expense. Before you start expensing those nights out on the town, you need to have a plan. Keep each receipt and make a note about the business discussed. No receipt, no deduction. Denver small business deductions can be taken, but you need to have a reason that is legitimate. Took your spouse to dinner to discuss your business? Great you have a legit expense. Went to the ballet afterwards? That doesn’t count. Eating by yourself while working? Forget about it, unless you are out of town and away for the night.
If your business is in Denver, but you drive to Colorado Springs to pick up some materials, you cannot write off your lunch. But if you go far enough away to spend the night you can deduct those lonesome meals. In fact, you may want to take the standard per diem rate published by the General Services Administration instead of keeping meal receipts for those days on the road. Just keep track of where you went and how many days you spent there.
Denver Home Office Tax Deductions
The home office is another big audit flag that can be a substantial deduction at the end of the year. Having a desk in your living room or bedroom doesn’t count. If you plan to take this Denver Home Office Tax deduction, you must have a room in your home that is a dedicated office. You must also have a substantial function that you can only perform in your home office. This might be billing, or record keeping or simply where you work if you have no other office.
To calculate the home office expense, you need to know the square footage of the home and that of the office. If your office is 10% of you home, you can deduct 10% of utilities, rent or mortgage interest, insurance and other home expenses. Certain expenses are not deductible, so consult with a professional.