Consequences of doing no record keeping?

It's not hard. You don't have to list individual transactions. Have one bank account where you put all income into, and from which you pay all business bills. Let the bank do most of the work to keep track.

If you don't do what you are supposed to, and can't prove what happened, they may tax you on all your gross income from the business without allowing any deductions. That could hurt.

___ Stu

I just what I think I owe the IRS, instead of doing complicated and time consuming detailed record keeping? My idea is let the auditor figure out whether I am underpaying my taxes.. I am sure my guestimate will be within 80% of what I do owe. So I doubt an auditor will find anything worth their time to collect extra.

If you intended this a a joke you certainly succeded.

You misunderstand the auditor's role. It is not to do your bookkeeping for you, but to verify that your figures are correct.

If your business expenses are guesses written on the ceiling, the auditor will likely disallow all expenses.

I just what I think I owe the IRS, instead of doing complicated and time consuming detailed record keeping? My idea is let the auditor figure out whether I am underpaying my taxes.. I am sure my guestimate will be within 80% of what I do owe. So I doubt an auditor will find anything worth their time to collect extra.

I'm not sure whether you are asking about your income being made up of

50% small cash transactions or your purchases being made up of 50% small cash transactions or both. Either way, the law requires that you keep accurate records. Without accurate records for expenses, the IRS will elect to deny any deduction for which there is no documented record. Without accurate records for income, the IRS will estimate your income. Which way do you think they will go: Estimate your gross receipts too high or estimate your gross receipts too low or right on?

I will not be reporting any deductions. I will just put on my Schedule C that my net profit was $x. It will be the auditor's problem to prove that I earned more than $x.

my net profit was $x. It will be the auditor's problem to prove that I earned more than $x.

Oh, that's too easy. The IRS will get your banking records. If you don't have a separate business account, all deposits will be business income and all withdrawals will be personal unless you can prove otherwise. If they aren't satisfied with that, they can also do a lifestyle audit to determine if you're probably sheltering cash income.

Depending on what your business is, there may already be audit guidelines that the IRS can use to determine your probable income. The classic example is the laundromat industry. Operators would routinely underreport their receipts (after all it's just lots of quarters). The IRS determined that it could estimate receipts based on water consumption.

Ira Smilovitz

In addition, if you believe you are eligible to Earned Income Credit or to Advance Child Tax Credit, or child care credit based on this self employed income, IRS is cracking down onexactly claims such as this.

I just what I think I owe the IRS, instead of doing complicated and time consuming detailed record keeping? My idea is let the auditor figure out whether I am underpaying my taxes.. I am sure my guestimate will be within 80% of what I do owe. So I doubt an auditor will find anything worth their time to collect extra.

Forgive my criticism, this premise is awful. The advice anyone worth their grain of salt would give is to document everything, 100%. "I don't have a receipt for the $500 I sent the local shelter." The answer is to get a copy. Not to wait for an audit and if they catch it, try to get it then. Anyone telling you not to worry would mark themselves as someone I'd be afraid to take any advice from. No one here would support your proposal.

My understanding is the best of audits are where the taxpayer has every last bit of paper filed by topic, and the auditor thanks them for their attention to detail. You are looking for trouble.

nding on what your business is, there may already be audit guidelines that the IRS can use to determine your probable income. The classic example is the laundromat industry. Operators would routinely underreport their receipts (after all it's just lots of quarters). The IRS determined that it could estimate receipts based on water consumption.

I have no problem with the auditor determining my "probably income" . I am not hiding anything. I have a gut feel for how much I owe, and I am confident an auditor will find that my guestimate is within 80% of the "exact" number.. If not, Ill just pay the difference then. Considering auditing is a rare occurrence , I stand to come out ahead in the long run..

No, it won't be the auditor's problem. The burden of proof in an audit is on you, not on the auditor. As others have said, if you don't have accurate records the auditor will simply make a high estimate of your income. Then it will be your problem to prove that you earned less than the estimate. And how are you going to prove that if you have no records?

Bob Sandler

I see no reason why they would give a "high" estimate of my income. Just as likely they will give a "low" estimate. I can certainly find enough records to prove to the auditor there is no hanky panky going. Credit card statements and bank statements are easily available online. I just can't be bothered tracking each and every penny coming in/out..

You misunderstand the process. The burden is on you to prove what your net income is. If you don't, the IRS will get your bank records to determine your gross income, and then tax you either on that or without any business deductions other than those you can justify. And the courts support the IRS in this. They figure that if you're too lazy to do it correctly, they won't give you any sympathy.

___ Stu

So you are saying they won't even let me deduct rent ,utilities and other obvious expenses from gross income? I find this really hard to believe. Sure, there are horror stories, but that sounds medieval! What next are you going to say, they will public whipping?!

That's the problem with getting advice online, people just make everything sound so negative and doomsday.

You didn't read what I (and others) wrote very carefully. I said, "The burden is on you to prove what your net income is." That means if you can prove to the satisfaction of the IRS that payments for rent, utilities etc. were actually business expenses, then of course you can deduct them. But that might not be as easy as it sounds.

Yes, some people want quick easy solutions without having to take the time to understand what is actually going on.

___ Stu

I am confident I can prove to their satisfaction what my expenses are. It is the lesser of two evils. You are saying spending countless hours doing meticulous record keeping is worth it just to make your audit go a little less stressful? An audit will be a pain, no matter if you have good record keeping or not.

the lesser of two evils. You are saying spending countless hours doing meticulous record keeping is worth it just to make your audit go a little less stressful? An audit will be a pain, no matter if you have good record keeping or not.

If there is any doubt whether your activity is engaged in with the intent of making a profit and you have failed to spend "countless hours doing meticulous record keeping" you are likely to lose any loss deductions. The reason for this is both the IRS and the courts believe that people who intend to make a profit will spend "countless hours doing meticulous record keeping" in order to know what is going on in the activity so they can identify problems and opportunities in order to enhance their chances of making a profit.

Banks and other lenders think the same way.

Finally, yes, audits are painful for the taxpayer. Audits are more painful for taxpayers who have not spent "countless hours doing meticulous record keeping."

Do you really think this requires "countless hours"? Just enter your transactions into a simple bookkeeping system as you make them. If it's such a small business, it won't be that much work.

I've never run a business, but I'll bet that there are POS systems that do half of the work for you automatically.

"Homer Simpson" wrote

You really can't afford the results of government math.

Best to do your own accounting and report your income and expenses accordingly based on those records.

Agreed. OP's question has been answered repeatedly and consistently.

sound so negative and doomsday.

Then why are you wasting your time trolling here?