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Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Hello if I made around 200k this year and I really want to

Resolved Question:

Hello if I made around 200k this year and I really want to retain the money, is there any way of legally doing so? I was thinking about buying a business with the money I made. Could I use this as a business expense? I'm not trying to illegally evade taxes, but I want to be able to re-invest without having to pay if possible.
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
HelloCustomer

Unfortunately, there is no way to avoid paying tax on any earnings you have, regardless of what they are used for. If you use the money to invest in a business, that simply becomes part of your basis in the business, much the same as if you would use it to purchase a home.

If at some point you sell that business, you then only pay tax on the gain you had from the sale (your selling price less your basis). So you are not taxed again on the money you originally invested. But you cannot defer paying the tax on your earnings for any reason at all.

Thank youCustomerand let me know if you have more questions. I am happy to help you with whatever I can.

Customer: replied 5 years ago.

Thanks. Well I have a feeling I'm going to get audited this year simply because I'm a student and last year I only made 10k and now this year I've made at least 10x as much.

If I happen to get audited by the IRS and for some reason they find it sketchy that say I bought a 50,000 car and the rest of my income was expensed with supplies I have for my business (all documented with receipts etc) , are they able to summon my bank records and see all of my bank deposits / withdrawals? I'm worried because this is going to make a HUGE mess for me considering I have tons of bank transactions due to the nature of my business. This is my last query.

Expert:  Merlo replied 5 years ago.
Hello againCustomer

Well congratulations on going from student to tycoon in just one year. That's quite an accomplishment!

The answer to your question is yes, the IRS can summons your bank transactions if they feel it is necessary to do so. They would normally only do this in a case where they suspected that your income was under-reported. They would be looking more for deposits that you made, rather than the payouts from your account.

But as long as you have receipts for all of your expenses, then it would not necessarily mean they would need to see your bank records. There is no way to offer any real assurance this would not happen, because if you were to be audited, each examiner assigned to an audit makes his own decisions on what they feel is required as far as records and documentation.

But requiring your actual bank records normally would occur more in a case where someone reported say $100,000 in income and $90,000 in expenses. The IRS would be a little suspicious that you could have lived on the remaining $10,000 profit which is all you claimed you had. As long as your expenses are not an outrageous percentage of your income, this would not normally be an issue.

Thank you againCustomer and let me know if you have more questions.



Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 3 other Tax Specialists are ready to help you

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