Wednesday, Apr. 06, 2011

Inflating Your Business Expenses

The cost of the brand-new printer that you just bought was $359 on sale, which means you're tempted to just put down $500. It's close enough. Besides, what's the worst that could happen?

Likely consequence: The IRS is well aware that taxpayers overstate expenses to claim higher deductions. In fact, the IRS estimates that as many as 70% of self-employed taxpayers who report net losses artificially inflated their expenses. First of all, you may be audited. If you can't produce receipts that show accurate reporting, your expenses will be denied. Worse, the IRS might hit you with an accuracy penalty of 20% of the amount you underpaid Uncle Sam if the agency's auditors determine that it was due to your own negligence.