Are Business Tax Deductions Worth the Risk of Being Audited?

April 25, 2007

Trent at The Simple Dollar is looking for feedback on any article of his that you had a reaction to. In return for feedback, he’s giving away 5 free personal finance books, check out the rules for entering; this is my submission to his call for feedback.

Trent recently wrote about his side businesses of a small computer consulting business and his blog in response to a reader question. I enjoyed the sections on getting started and building the business but had a question for him on his final section about taxes. Trent wrote:

I save every receipt and full documentation on everything associated with the businesses and I don’t try to play any games with questionable deductions because it’s worth the extra taxes I might pay to avoid a detailed audit.

What are Questionable Deductions?
I’m curious if Trent could expand on what he sees as questionable deductions. The reason I ask is that I’m in the early stages of my first business and have been spending a lot of time learning about tax deductions for businesses.

The government offers legitimate tax deduction to businesses to help drive the engine of economic growth and many businesses take many thousands of dollars of deductions every year. My thoughts were that some people didn’t take advantage of these tax breaks because they didn’t understand the rules and didn’t want to risk breaking them.

I’d like to know more about the questionable deductions that Trent mentions so that I can learn more about them and avoid any mistakes he may know of.

Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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Comments

2 Responses to Are Business Tax Deductions Worth the Risk of Being Audited?

  • Ben

    KMC, from what I’ve learned, if a person wants to be aggressive in their deductions they must make sure they have very solid and specific records of everything. This is where I struggle. I’m not a very neat or organized person by nature so I’d have to work extra hard to document everything properly.

  • KMC

    I’m never aggressive with deductions. I know they’re there for a legitimate reason and people use them all the time and don’t get audited. I’d rather be on the overly-safe side. Obviously, this technique definitely doesn’t guarantee I won’t be audited, but I’d rather not have to answer why I thought my second-hand computer was worth $500.

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