Avoiding Problems for Online Auction Sellers |
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Home Based Business Tax Avoidance Schemes
Scam home-based businesses and tax avoidance promotions have gained popularity over the last few years for a variety of reasons, including:
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The popularity of the Internet.
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The desire of individuals to reduce the amount of taxes they pay.
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Unscrupulous promoters selling tax avoidance and audit assistance packages.
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Taxpayers being advised they can deduct all or most of their home and other personal assets as business expenses.
Personal Expenses or Business Expenses
Most taxpayers with home-based businesses accurately report their income and expenses, while still enjoying the benefits that a home-based business can offer. However, some individuals have received advice that they can operate any type of unprofitable “business” out of their home and claim personal expenses as business expenses. Nondeductible personal living expenses cannot be transformed into deductible business expenses, regardless of how convincing the information in marketing materials may seem.
The following are a few examples of items that are generally not deductible as business expenses:
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Deducting all or most of the cost and operation of a personal residence. For example, placing a calendar, desk, file cabinet, telephone or other business item in each room does not increase the amount that can be deducted.
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Taxpayers should also be aware of depreciation recapture rules when assets are later sold.
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Paying children a salary (e.g. for answering telephones, washing cars, etc.).
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Deducting education expenses from salaries paid to children wrongfully claimed as employees.
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Deducting excessive car and truck expenses when the vehicle was used for both personal and business use.
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Deducting personal furniture, home entertainment equipment, children’s toys, etc.
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Deducting personal travel, meals, and entertainment under the guise that everyone you encounter is a potential client.
For more information on home business expenses that are deductible, visit the Business Expenses page.
Understanding Your IRS Notice
We realize that receiving a notice from the IRS can be unnerving, but if you follow these simple steps, the process to resolving the discrepancy should be straight forward.
This IRS Letters and Notices video or written transcript provides an overview of how to respond to written contacts from the IRS.
Don’t Be A VICTIM OF A TAX SCHEME!
Some promoters are targeting home-based businesses including online auction sellers for abusive tax schemes.
Need Additional Information?
If you have questions on how to amend your return, please contact the Internal Revenue Service at: 1-800-829-1040.
For questions regarding specifics on tax schemes, or if you wish to report a possible scheme, call: 1-866-775-7474 or send an e-mail to: irs.tax.shelter.hotline@irs.gov
References/Related Topics
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Page Last Reviewed or Updated: January 23, 2009