You must be ready in case you receive an IRS audit letter. Most IRS Audit customers are chosen by set criteria depending on what is claimed on the return.
Daphne runs a business from her El Dorado Hills home. Her kids are at school all day. She uses a fourth bedroom as an office. She has claimed the Home Office Deduction for several years because “everybody does it.” One day, she receives an IRS audit letter.
The IRS selected her. The IRS reviewed entries from last year’s tax return. It sent a letter and told Daphne, in a polite manner, to prove those deductions. That includes how much of her household expenses were exclusively for business use.
This will be her first IRS audit. Daphne calls Dave Fechter and schedules an appointment. She visits.
Daphne and Dave have a talk. Dave helps her calm down and look at this patiently. They determine how big Daphne’s home is. 2,000 square feet. Daphne uses a fourth bedroom that is 150 square feet. Therefore, Daphne’s business uses 7.5% of her home.
“Small beans,” you may say. I do not think so. Dave and Daphne then go through her records. They look at mortgage payments, utility bills and cleaning costs. This 7.5% adds up to a respectable number. Daphne can present this during the IRS Audit and know she has a solid foundation.
If you are using part of your home for a business and you get tagged for an IRS audit, be ready to prove your deductions. Dave Fechter CPA can help you get through the experience. Relax. Be patient. You will be glad you called.