More than anything else, my clients seek a peaceful relationship with the IRS. Most want to take every legal deduction—but not cross the line and trigger an audit. Here are some tips to help you develop a feeling of comfort and safety when dealing with taxes:1. Get to know the game (and it is a game). A game is an activity with a goal toward which play is directed. When you know the rules of the game, you can masterfully bend them to your will, set and attain ambitious goals and make the process playful. For example, travel is either deductible or not based on clear rules outlined in IRS Publication 463. Use them.
2. Like a tennis pro, learn how to spin. Deductibility is primarily determined by your intent (spin). If you fly somewhere to attend your son’s wedding, the trip isn’t deductible. But if the primary purpose of the trip was to attend a valuable, three-hour association meeting on Thursday night and visit colleagues on Friday and Monday, you’re taking a business trip. It’s deductible even if you take a weekend break from your busy work schedule for the wedding. All deductible: airfare, lodging, meals—everything. These rules work for both business owners and employees.
3. Maintain good IRS hygiene. File on time, open IRS mail, respond promptly and forgive the IRS in advance for everything it’s going to do. (This practice is helpful with your weird cousin, too.) The IRS budget has been cut by Congress, and it has the new burden of enforcing the individual mandate in the Affordable Care Act. Taxpayer services (including audits) are being cut, so wait times on the phone are longer. If you have to call, put on some good music (the IRS hold music is awful) or start a game of Candy Crush Saga to pass the time until the agent answers. Then be really, really, really cheerful on the phone. You’ll be rewarded. The agent will actually try to help you.
4. Keep a diary. The IRS adores “contemporaneous” recordkeeping. Write down where you go and what you do (for your business or career) and what you spend every day. You’ll avoid overlooking any deductions and you’ll have all the evidence required to substantiate your “spin.” One of my clients sold a screenplay and used his diary to go back three years and document expenses directly involved in developing the storyline. Build your own storyline for your business or career that converts previously personal expenses into tax deductions. Blake Mycoskie started Tom’s Shoes with the promise of giving a pair of shoes to a person in need for every pair he sells. Given that storyline, whenever Mycoskie hops a plane for anywhere, it’s a business trip if he packs a box of give-away shoes. What’s your story?5. Save stuff. Yes, all those receipts may be useful one day. Start a fresh box each year. To substantiate a tax deduction, you need to prove two things: You paid for it and it was an “ordinary and necessary” business expense. Even if the expenditure appears on your credit card statement, you may need the actual receipt to identify the items purchased and prove that what you bought was used in your business or career.
Now that you know some of the rules, go play the game like a winner. I know you’ll feel better if you do.
Rob Kirby, CPA, EA, CFP, MBA, turned away from his parents’ dreams of performing on Broadway to follow his own dream of being an accountant. His practice is in Santa Rosa. You can reach him at (707) 545-8297, www.taxoasis.com or robkirby@taxoasis.com.
