Most recently I spoke about commingling your money with your business. A definite no no if you want your business to be taken seriously but even more important if you have an LLC. Commingling can very quickly void the liability protection that an LLC is supposed to offer. But I am not a legal professional so I will not talk any more about that. What I want to talk about is one of the most common "commingling violations" I see in my business and the deduction that can cost your dearly - the mileage deduction.
What's your opinion of a red flag?
Taking a mileage deduction usually happens for two reasons - you are self-employed or you have a job that requires you to drive a lot and you do not get a full or any reimbursement from your employer.. Either way, taking the mileage deduction can be a very nice deduction. At 54¢ a mile (that roughly a buck for every 2 miles), it can add up quickly.
Why is the mileage deduction a red flag?
You know all of those forms you get in the mail starting the beginning of January? You know, the 1099 this and 1098 that? Well, the mileage deduction is one of those items that you do not get a form for and is "on your honor". That basically means it's your word because there is no reporting forms that are sent in by another party to prove it.
And because the IRS has been able to improve their computer processes and systems, all it really takes is a "push of a button" to send out a letter telling you your mileage deduction has been disallowed unless you can prove it! Don't take my word for it though. Here's what Fox Business has to say about it: Be Prepared: Automobile Expenses are a Common Red Audit Flag.
Bam! Here you go Mr. IRS Revenue Agent?
Can you say that when you get that letter?
Let's say you're self-employed as a contractor at goes from job to job in your own car. And you average 100 business miles a week. In a year, that's 5200 miles. At 54¢ a mile, it translates into a $2808 deduction! But then you get that dreaded letter...
The IRS says NO! Or Prove It!
Or 25¢ a mile! That's a 46% tax on 54¢!
I've spoken about it before and I'm going to talk about it again - Get a Mileage App!
There are many types of mileage apps out there. If you drive occasionally for business and only have a few hundred miles to write off, go ahead and use a free app that requires you to manually enter your mileage. At least it's a record.
But if you drive a lot a miles, like the example I just gave you, a few dollars a month is well worth the price for an app that will automatically record you trips with little effort from you to save you $1300! And it is a business expense! I recently came across TaxAudit.com Blog that explains simply about this deduction and what needs to be done when you get an audit.
I've been using MileIQ and I will say it's the best app I have used. TripLog is another app that I have used in the past that I think works very well too. Both of them can be set up to record trips automatically. But like anything else out there, they do need a some regular attention from you.
Here's a link for both apps and both can get you started for FREE to give them a try.
"Packing two or more articles in a manner that the quantity or value of the individual items cannot..."
No. That's not it. I'm talking about Accounting. But more specifically: COMMINGLING.
BusinessDictionary.com defines commingling in Accounting as...
"Mixing a firm's cash with personal funds, a practice that always attracts adverse attention from taxation authorities, and may make the offender personally liable for the firm's obligations"
Why is this so important? 3 simple letters: LLC
Those of you who have worked with me know that I do not like the LLC. But it's not because of the nature of it. It's merely because of the way small business owners treat it.
For my purposes as a Tax Professional, it essentially doesn't matter. It's really all about the business structure. But for accounting, the story changes somewhat.
You see, when you create an LLC, you create a legally separate entity. But if you don't treat this separate entity with integrity, you've wasted $130 creating an LLC
I don't commingle. (Yes you do)
Owner, Tax Professional and Entrepreneurial Adviser of JDBC Tax Services. Over 20 years operating businesses and 5 years as a Tax Professional
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