Understanding Home Business Deductions con't...

Home-Based Business Schemes

According to the IRS, home-based businesses and tax avoidance scams have really gained in popularity over the last few years. In a consumer alert, the IRS warned that no matter how convincing the claims by shady marketers of bogus business schemes may appear, nondeductible personal living expenses cannot be transformed into deductible business expenses. That means that stuffing envelopes at the kitchen table does NOT qualify you for a business deduction for a home office, travel or entertainment.

According to the IRS, many nondeductible personal expenses are commonly claimed as business expenses in home-based business schemes. Here are a few:

• Deducting the cost and operation of a personal residence (your home).
  
• Paying children a salary for services, such as answering telephones, washing your cars, or other tasks and then deducting these costs as business expenses.
  
• Deducting education expenses from the salary you wrongfully paid to your children by calling them an employee (two strikes against).
  
• Deducting excessive car and truck expenses when the vehicle has been used for both business and personal use. (That $2000 Stereo System you put in the pig hauler is not a legitimate deduction.).
  
• Deducting personal furniture, home entertainment equipment, children’s toys, and other household items (That wet bar in the barn will not fly.).
  
• Deducting personal travel, meals, and entertainment under the guise that 'everyone is a potential client.' Many Multi Level Marketing promoters tell you EVERYTHING is a deduction because EVERYONE is a prospect. That won’t fly with the IRS either.

REMEMBER: Creating a bogus home business or other scheme puts YOU, the taxpayer, on a slippery slope that will result in paying interest and penalties on top of the taxes you will owe, as well as increase your chance of an audit. You can’t cheat for long and if the IRS feels there was fraud, they have FOREVER to attack your return and you!

Tax Deduction Myths for Business