General Question

saservp's avatar

Filing a loss this year, am I prepared for an audit?

Asked by saservp (291points) December 13th, 2010

Hi, All,

I’m just a normal guy who decided to start a little consulting/web hosting service on the side of my day job this year. I made some dumb decisions but also there have been lots of “startup costs” and the end result is that my total “income” this is about -$5,000.

I heard that sole proprietors filing a loss on Schedule C is a massive flag to get audited. It makes me nervous, but in reality I think I’m fine because I have absolutely every receipt from every expense I had and all income I received (and there are no froo froo expenses). Is this enough if I get audited?

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3 Answers

Tropical_Willie's avatar

Find a CPA this year.
Be prepared for an audit, your idea of froo-froo may not line up with auditors. Also a single year loss of a new business is a RED flag.

wundayatta's avatar

I’m not a tax expert, so take this for what it’s worth. It’s my feeling that if you have all your documentation and it is well organized, then an audit shouldn’t catch any problems, as long as your math was accurate. Did you prepare using software or by hand?

john65pennington's avatar

I did not have a business, but i was audited about 10 years ago. i, like you, kept all my receipts, just in case. my tax return for that year, was 100% accurate on my part. when audited i had proof of each deduction. the examiner went through some of my receipts and to my surprise, he discovered more deductions than i had entered on my tax forrm.

Yes, this may be a red flag for an audit. but, remember, the IRS is not a big dog waiting to chew you up and spit you out. my examiner was just as normal as you and i. the object is to be prepared to answer and backup any and all deductions you are claiming.

You sound like you have your ducks in a row, so proceed and see what developes.

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