I just received a letter from the IRS for my 2006 taxes, which I
failed to report my 1099-MISC. The 1099-MISC reports that I received
2620. This money was received for consulting services for computer
Now the IRS correctly reports that I owe them 800 that includes
interest, and without any penalties yet. Of course paying 15.3
percent or 370 for taxes, but can't I amend my '06 form and include
the business expenses, which I never claimed I owned a business.
So if I report $3000 in expenses can I include all of these in my
deductions to nullify my increase in income?
On the one hand, yes you can amend your tax return by fuiling a corrected
Schedule C showing all income and expenses for this work.
Rather than fill out a form 1040X, just attach the new Schedule C
to the paperwork the IRS sent you and return to the address
indicated on their notice.
On the other hand, be aware than large expenses may be further
examined, so be sure to have in your possession receipts and other
proof of those expenses. At this point in time, if you have no proof
to show te iRS, should they ask, I would be very hesitant about
including them on your tax return.
Finally, or on the other other hand (?) be aware that if you have
so many expenses that you showed a loss, the IRS might wish to
challenge whether this is a business or a hobby.
If a hobby, you do not file schedule C, and your expenses, which cannot
exceed income, are shown as miscellaneous schedule A deductions subject
to reduction by 2% of AGI.
Ordinarilly, you get a free ride on the question of profit vs hobby
for two years or so, but once the IRS starts questioning expenses,
you still have to prove all expenses.
>> I just received a letter from the IRS for my 2006 taxes, which I
>> failed to report my 1099-MISC. The 1099-MISC reports that I received
>> 2620. This money was received for consulting services for computer
>> Now the IRS correctly reports that I owe them 800 that includes
>> interest, and without any penalties yet. Of course paying 15.3
>> percent or 370 for taxes, but can't I amend my '06 form and include
>> the business expenses, which I never claimed I owned a business.
>> So if I report $3000 in expenses can I include all of these in my
>> deductions to nullify my increase in income?
> On the one hand, yes you can amend your tax return by fuiling a corrected
> Schedule C showing all income and expenses for this work.
> Rather than fill out a form 1040X, just attach the new Schedule C
> to the paperwork the IRS sent you and return to the address
> indicated on their notice.
> On the other hand, be aware than large expenses may be further
> examined, so be sure to have in your possession receipts and other
> proof of those expenses. At this point in time, if you have no proof
> to show te iRS, should they ask, I would be very hesitant about
> including them on your tax return.
> Finally, or on the other other hand (?) be aware that if you have
> so many expenses that you showed a loss, the IRS might wish to
> challenge whether this is a business or a hobby.
> If a hobby, you do not file schedule C, and your expenses, which cannot
> exceed income, are shown as miscellaneous schedule A deductions subject
> to reduction by 2% of AGI.
> Ordinarilly, you get a free ride on the question of profit vs hobby
> for two years or so, but once the IRS starts questioning expenses,
> you still have to prove all expenses.
I basically went to the business and helped them with their computers,
e.g., install new server, configured client machines, and helped
maintain web/e-mail/file server for several months remotely.
It looks like you were open for business, so you can take the
legitimate deductions. Maybe you should talk to a tax pro. You have
to calculate the business usage of your laptop. For example, if you
used the laptop for business 75% and pleasure 25%, you only get to
write off 75% off the cost of the laptop. As the laptop is an asset,
it has to be depreciated over a certain number of years (5 years for
laptops if I remember correctly). Roughly speaking you deduct only
20% of the total (which in my example is 75% of the full price of the
laptop). In addition, when you sell, junk, or give the laptop in the
future, you will have to recapture the depreciation you took over the
years; but if the sale price is zero then the net profit = sale price
- cost price + depreciation = 0 - 1000 + 1000 = 0. As regards
business travel, which includes not only airfare but also gasoline or
miles for the car you drive, it too is deductible. Once again, you
have to allocate personal miles, and business miles. Yeah, you have
to keep some such log for the miles you drive. I think if you make a
trip to Hawaii for business for 3 days but also vacation there for 1
day, I'd venture that only 75% (3 divided by (3+1)) of the airfare is
deductible. You can write to the IRS and tell them that you need more
time to prepare your amended return. You can also pay the money they
request with your request, and you'd get it back later -- including
the interest and penalties that they charged you. As for the receipts
you don't have, you can often dig them up by asking the stores you
purchased from for receipts: the info might still be in their
They're usually not sufficient. The IRS want the actual receipt from
the store showing the items purchased or meals ordered, number of
people present (for meals). However, if you have receipts for
everything but are missing the receipt for $20 from say USPS, but it
is on your credit card statement, then you could probably use the
credit card statement for this one item and it would likely be OK.
I don't have a receipt for the laptop, had it for several years, and
believe it would be difficult to locate all the receipts for gas
required to travel back and fourth. It's about a 20-mile drive from
my house, and I made the trip about 20 times during that year (1996).
If I decide to make the amendment, I will have to pay the 15.3 for the
self-employment tax, which is 320, and then I have the extra income
tax, which is $420, the interest at $80, and the IRS is going to
charge me $52 to do a direct debit. So, what do you pro-tax experts
think realistically, I can save from the $420 tax for increase income
using the maximum allowed deductibles, and that is if they accept it
with little proof?
$370 - self-employment tax (HAVE TO PAY)
$52 - direct debit (HAVE TO PAY)
$80 - interest (HAVE TO PAY)
$420 - tax for increase in income, with the maximum allowed
deductibles, how much can I decrease this by?
========================================= MODERATOR'S COMMENT:
How much do you owe and, if relatively small, you can pay over,
say, three consecutive months. That would allow you to avoid an
installment plan and any fees associated with such plan.
So far as a recommendation: Declare all income correctly as well as all
deductions you can back up, and start savings and logging receipts.
If you can document that you made those trips then you can take
standard mileage. You could for example use invoices to prove that
you went to a certain place, some proof where your home was (like your
property tax statement or apartment lease contract), then use google
maps to figure out the one-way distance and multiply by 2, then by
20. When you take the standard mileage, you cannot take depreciation
and gasoline expenses as those are already built into the standard
mileage rate. You can also deduct money for additional repairs (but
only the business portion of it). You can also deduct tolls, if any,
on the trip.
In 2008, the standard mileage rate is 50.5 cents a file from January
to June, and 58.5 cents a mile from July to December. For 1996 it
must have been something less than 31.5 cents a mile.
Maybe in 1996 it was 31 cents a mile. See line 1 in
Your original post mentioned 2006.
If you are able to take the deductions for mileage and laptop you'll
reduce SE tax, regular tax, and interest. Mileage would be .31*(20
trips)*(20 miles one way)*2 = 248. Laptop might be $1000, so about
$200 a year. The savings in SE tax would be about $69, and in the
regular tax about $77.
However, if you did deduct the laptop, you have to do so over 5 years,
so you'd need amended returns for 1997 through 2000 to claim the $200
per year. The IRS would owe you interest on this $200. It's quite
messy paperwork though.
If you pay the tax bill in full, there will be no need for an
installment plan, so you don't have to pay the $52 at all.
Just wondering, is there also a penalty, or is that included in the
interest of $80?
However, this was for 1996? The IRS has 3 years from the date you
filed your return to begin proceedings in general, and 6 years if you
omitted income in excess of 25%. I'm guessing that the former would
be applying to you, and the IRS could not begin proceedings.
Ah but remember that to deduct mileage, one must be traveling away from
principal place of business. Given the facts in this case, that
he ".. basically went to the business and helped them with their
This means principal place of activity was at that one and ONLY
customer's site and not at his home, office or no.
Travel is non deductible.
Harlan Lunsford, EA n LA
A good point, but think of a plumber who goes to a person's home/
business to help them with fix their toilets. The miles the plumber
drives are deductible. Their principle place of business might be
their home or downtown office where they perform set up appointments,
perform invoicing, etc. So travel to each client site is deductible.
If the OP had such a setup, maybe he should be able to deduct miles
How much penalty did they charge you on your notice? If you pay late,
the penalty is 5% a month up to a maximum of 25%. If you're on an
installment program, the penalty is 0.25% a month up to a maximum of
25%. So if you've already been charged 25% penalty, then setting an
an installment plan does not make much sense.
So it would seem. But under the Supreme Court's reasoning, it's not a
home office unless the taxpayer actually earns money by the work done
in that office. Mere administration of his business is not enough.
On the other hand it might qualify as a home office on the basis that
the plumber stores goods that he sells there.
added tax plus interest but with no penalties. Quite generous of them,
don't you think?
And yes, Johnny, start sending them 180 per month without the
installment agreement. They'll take it and then send you another bill
30 days later. Again send them money, and if they don't like it,
they'll contact you further.
Harlan Lunsford, EA n LA
contains pipes, wrenchs, tools, etc, and this clearly makes the travel
deductible, whether or not he has a home office.
In OP's case, he didn't need a vehicle to haul stuff in; just himself,
so that's commuting and non deductible.
Besides, remember? He only had one client.
Harlan Lunsford, EA n LA