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I have been a family therapist in private practice for over twenty five years, and thus file a schedule C. For several years I have been intentionally de-escalating the practice in preparation for retirement, probably by 2013. For the first time, in 2010 and 2011 I had a business loss (5000 and 9000+ respectively). Though all of my documentation is good, I am so terrified of being audited (because I lost money), that I'm thinking of NOT filing my schedule C for those years (I'm late filing, but fully paid on my taxes) just as a preventive measure. However, to do so will cost me over two thousand dollars on refund money owed me. I suppose what I'm wondering is, since this is the first time in MANY years that I have LOST business income, how STRESSED should I be over the probablility of being audited? Does the IRS make some sort of "allowances" for the realities of people (like me) "slowly" deescalating a business, so long as losses don't go on too long? I am 61 and have never been audited before. Thank you.
Optional Information: State/Country relating to question: Tennessee Already Tried: deep breathing...meditation...treadmill....wine. I don't really KNOW why I'm so stressed. It might be worth sacrificing the two grand on my refunds just to be able to calm down a little.
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Well, first of all, you can't omit the Schedule C's. It isn't just the "botXXX XXne" that determines your filing requirements; you have gross receipts in an active trade or business & that alone would require you to file.
That said, you are worrying needlessly.
Those relatively small losses in & of themselves are not going to trigger an audit.
Things like excessive travel & entertainment when compared to your gross receipts would be more likely to trigger an audit.
Although it may not apply to you in these circumstances, the downturn in the economy alone, would account for less business.
Your solutions to calm down sound interesting; I think you need a larger glass of wine & that should do it.
Are you typing something?
Please let me know if you are receiving my responses.
Ok. So here's another problem. BC I needed to catch up on some CE's, I flew to a major (accredited) four day professional conference (2011) in Orange County, California. And, just bc of what and where it was, I spent a boatload of money, on lodging, car rental, etc. So, for 2011, those expenses DO seem way out of line. Of course this is the same conference I've attended several times previously, and I've got plenty of money from other sources to afford it....but I'm pretty sure the IRS doesn't give a rat's ass about that. The only thing I know to do on that score is to expense it along the standard per diems for Orange County. Any other suggestions? It just seems to be a sure red flag....If I hadn't done it many times before, in more prosperous years, and had thought about it longer.....I probably would have skipped it altogether.
Despite being noted as a "better than most" therapist....I'm the first to acknowledge myself as a "probably worse than most" business-person. I sort of accidentally wound-up in private practice fairly early in my career, partly bc the compensation back before the age of "managed-care" was great, and partly because so many people told me I would be great at it. And I WAS great at it, except for the managing my own business part. Looking back on it, had I had any real clue about the stress that business management would cause me during my career, I would probably have remained an employee. But then, in at at-will state, like Tennessee, where you can legitimately be fired for not attending your boss's prayer breakfasts....that's really no picnic either.
If there's any way to mitigate the impact of what will surely be seen as my "Orange County Junket," I'd sincerely XXXXXXXXXX XXXX. While I had a great time and learned a lot in the process, it just seems so damned STUPID, in retrospect. Now I sort of feel like I'm just INVITING them to come and haul me off to the darkest corners of tax court hell.
Anyway, when you wander back into the force-field of your computer....any further thoughts are most appreciated.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information. What happens now? If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.The site has been experiencing some problems with the "Chat" mode, since I hadn't received a response from you, I switched to this Q/A format which is the solution at this time for this problem.Here are my answers to your questions, repeated from "Chat":
Well, first of all, you can't omit the Schedule C's. It isn't just the "botXXXXX XXXXXne" that determines your filing requirements; you have gross receipts in an active trade or business & that alone would require you to file.
OK, it looks like you were receiving my responses after all.
Well, as I mentioned, the travel & entertainment category can be an issue. One thing I'd consider is to put that convention/seminar expense in a different category or on it's own line as "Continuing Education Expense".
The test that you need to meet is the "ordinary & necessary" test. Clearly attending one of these conferences is "ordinary", but was it necessary to obtain your required CE's this way & for this expense? Probably not. You most likely could have obtained them more economically. So, what's the answer? The answer is that the CEs weren't the primary reason for attending; you gain a lot from the interaction with other therapists; the exchange of ideas and techniques; you can't get that from an online CE course for example.
I will say, that if you spent any time at the conference location either before or after the seminar; it would be wise to allocate some of your expenses to personal non-deductible expenditures.
Also, if you feel that the expenses are way out-of-line, there's nothing that says that you have to claim them.
It is hard for me to comment further without any numbers as to what your gross receipts were and what these expenses totaled.
Airfare, hotel, car, and hotel meals came to around 2200. Legimately, I can shave around 600 off as personal expense, since I stayed an extra nite to save myself from having to rush and I really only used the car for one day to drive along the coast. Still, I just feel as though I'm asking for trouble.
I think I covered all of your comments/questions at the same time you were writing them. As I said, there's nothing that requires you to claim 100% of your trip. Take 50% if it will let you sleep better. Personally, I use your wine idea, but in a greater quanity. Surely you can come up with some non-tax issues to worry about if you must worry about something. How about worrying about what you are going to do with yourself when you retire? Trust me, when you switch from a AA to a CC, the days go by quickly; you'll have trouble doing everything you use to do & work; now with no work, your days will fill up faster than ever. You could become an "Expert" on JustAnswer & Pearl & answer family social issues; so go for the retirement; nobody ever said "I wish I had spent another day at the office" when they are about to check out for good.
Experience: Extensive Experience with Tax, Financial & Estate Issues
In response to your last comment, What are your gross receipts? $1,600, is not that much money, considering airfare, etc. That's about 72% of the total $2,200.
Don't laugh but gross receipts in 2011 were 4500. But, like you alluded, I had OTHER things to do. Like my PASSION of animal rescue photography, which I spent on average about 15 to 20hrs a week at last year. Not to mention tweaking an investment portfolio. Still, I wonder if I ought to expense it down to $800. This is making me crazy.
I'd use the $1,600. There are certain things you must do in order to keep your license & to keep up with your professional responsibilities. If you can continue to practice part-time & come within $1,000. of breakeven, I wouldn't be too concerned about it. At some point, you may decide that it is time to hang it up, but clearly you don't want to do that for tax purposes.
Steve...i just thought of another tax question. And the context of this is that my wife and I, while currently on an AGI of around 60,000, have a portfolio over one and a half million. And it occured to me that since the 2% rule applied to that AGI is pretty low....that I could legitimately deduct a good prercentage of some pricey investment advisory services. Are there any standards for this, percentage-wise? A related question would be the feasibility of deducting a substantial portion of a $20,000 Investools educational course, offered through TD Ameritrade, one of my brokers. If you're not laughing too hard by now, would appreciate your thoughts. Thanks.
Investment advisory services expense incurred for managing your portfolio, are deductible investment expenses. There are no percentage standards for these type of expenses;Educational expenses related to obtaining a general education in the areas of managing and making investments, not specifically related to managing your portfolio, but rather providing an education in a wide variety of investment topics, would not be deductible any more that higher education expenses (for example an education in business with a "finance" major) that you would take with the objective of being able to manage your own portfolio, which would not be deductible.Including these educational type of expenses in "investment expenses" deductible under IRC 212, is very risky and runs the very real possibility of disallowance as well as provide a "red flag" to the IRS as the IRC 212 expenses would initially be compared to your investment income, not your investment portfolio as the investments themselves are not disclosed anywhere on your tax return.Investment seminars, conventions & similar meetings that you attend for the purpose of assisting you to manage your investments, are specifically disallowed as investment expenses. Although this may not seem reasonable, this is another example of what happens when deductions are abused. Certain taxpayers were deducting all sorts of expenses in this category, investment cruises, attendance at offshore investment seminars in the Carribean, and on & on; so, now none of these expenses are deductible.
Understood. Thus, wrap-account management fees would be deductible, I presume? What about subscription advisory services through such orgs as The Motley Fool. com, or Morningstar.com? Thank you.
Yes wrsp-around management fees would be deductible as would subscription advisory services; the ones you mention, Barrons, WSJ, Value Line, etc.