A Tax Nightmare

by | Oct 31, 2018 | Cracking the Tax Code with Christy | 0 comments

Crave the thrill of scaring yourself silly for Halloween seasons to come?  Why wait?  Start today on the path to financial doom and destruction!

First, get yourself in the right frame of mind. Convince yourself that your measly annual cash flow will never be noticed among those impressive incomes of the Romneys, the Gates, the Kardashians, and the other freestyle swimmers in the vast sea of tax responsibility.

Next, when you file your federal income tax return, avoid claiming any profit.  At all.  Even if it’s in the same year you generated $1.1 million in cash flow. The key term is “cash flow.”  Tell yourself that you aren’t actually making profit.

Don’t claim any profit the next year, either.  Or the year after that.  In fact, stop filing altogether when you realize without a doubt that you’re earning profits.    Don’t claim any profits even after Uncle Sam declares it’s high time you were audited.  Why bother to file?  Uncle Sam will just collect the bulk of what you’ve made.

Don’t answer the door when Uncle Sam knocks.   Don’t call the number on the door knocker he leaves behind, either. Instead, hurriedly throw together a bad return full of ridiculous numbers.  Go ahead and plead that you had a meager $10,000 in income but faced a whopping $450,000 in expenses for the year.  Sign the return under penalty of perjury, and dash down to the local IRS office to file it before you lose your nerve at the thought of going to jail for lying.

Then sit tight and wait.  You will soon be haunted by Uncle Sam’s demands for documentation.  Don’t respond.

Justify the return to yourself, then to Uncle Sam:  You’ve been working too hard to maintain your books well.  All you know is that you have all the paperwork, but it’s not organized.  Who has the time to organize?  You’re too busy trying to run a business. Or 2.  Or maybe 10 or 20.

Be very shocked when Uncle Sam shows up on your door step again, this time with a subpoena for your bank records for the past 5 years.  Do the American thing.  Panic.  Panic loud.  Panic long.  Then cuss Uncle Sam with all the power and muster available in your pent-up adult vocabulary.  Fly high the ol’ red, white, and blue flag, and consider declaring yourself a sovereign citizen, one not subject to taxation by the mean American government. Call up your neighbors and gorge on episode after episode of Doomsday Preppers.

After 3 or 4 days, recognize the futility of hiding.  Run to your little receipt box.  It’s a bit of a mess, but hey, you can straighten it out, right?  You have the remainder of the 30 days Uncle Sam’s given you to produce the records.  It won’t take any time at all to categorize, organize, and provide evidence that you lost money year after year after poverty-stricken year.

Meet with your tax professionals.  What do they mean, there aren’t sufficient receipts to justify the number of deductions taken on the tax return?  Oh, wait, maybe you forgot a box of receipts.  Or 2 or 3.  Or the 77 boxes in the warehouse in another state.  How many bank accounts do you have, anyway?  And what’s this about you shouldn’t mix income and expenses from one business with the income and expenses from another?  Isn’t it all the same?  No?

After much frustration and hair-pulling anxiety, give up and persuade the tax professionals to sort it all out. Discover that the sorting out takes days.  Weeks.  Maybe months.  Meaning you face fees for days, weeks, months of service.  Not to mention the IRS penalties and interest potentially piling up as the audit drags on. Spend hours figuring out a budget to accommodate new tax liability which has arisen as a result of the adverse audit.

Be afraid.  Be very afraid.  Clutch your books to yourself as you curl fetal-like in your bed.  Lose weight.  Lose sleep.  Lose more weight. Listen humbly to tax professionals as they propound great words of wisdom.  Tax audits, as it turns out, are conducted fairly rationally:

Uncle Sam recognizes that business losses do occur, but they should not occur sequentially for years at a time, because then it’s obvious you’re not engaging in a business, but in a hobby. If your lifestyle reflects income greater than what shows on your tax return, Uncle Sam likes to know about the source of the additional funds necessary to pay your bills. If you take deductions, you must have proof of payment to back up those expenses. The greater your cash flow, the more urgent it is to hire professionals to assist you with sound and easily accessible and understandable recordkeeping.

And keep records independently for each one of your business ventures.
If you find yourself haunted by an IRS audit, call Law Offices of Christy Lee, P.C.   We’ll offer our skills to help keep potential tax terrors at bay.