Today TaxMama® hears from Hugh in the TaxQuips Forum with a long question. “To make his story short, he lays out his income and expenses and wants to know what his audit risk is – and what records to retain in case he’s ever audited.”
Hi Hugh,
In an example like yours, there’s no red flag to attract an audit. You’re odds of being audited are quite low.
You also asked about the materiality of a $50 expense. That depends on the whims of the auditor, whether they’ve had their coffee that morning, and their spouse or child/ren or bosses have been unpleasant that day. Also, if they have ever tried your business and failed.
Of course, some of it also depends on how well-organized your presentation is for the audit, and your own demeanor and behavior. But sometimes, even when you do everything right, and you’re low-key, pleasant, polite and delightful – the issues above will override.
You can never go wrong retaining records. Space, these days, is cheap. When I started out – a 640K Radio Shack TRS-80 cost $650. Now, a 500 GIGAbyte drive costs about $100.
And remember, you can find answers to all kinds of questions about audit risk, recordkeeping and other tax issues, free. Where? Where else? At www.TaxMama.com.
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