The case: B, a self-employed, serviced the entertainment business. He reported income and expenses on one Sched. C. The IRS denied many of his deductions for lack of proof.

The case: An S corp deducted some expenses for travel and meals, independent contractors (ICs), and office supplies. The IRS then denied all the deductions and the case ended up in court.

The case: A sales rep who traveled a lot to meet with clients and potential clients deducted a number of expenses. The IRS denied most of them...

Beginning on January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019
• 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019
• 14 cents per mile driven in service of charitable organizations

The case: C was a sole proprietor whose consulting business primarily involved traveling within 30 miles of her home to train clients in software. She kept a contemporaneous mileage log, generally recording the date or range of dates for a trip, the city, a brief description of the purpose of the trip, the number of miles driven...

Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018

Has your company or client ever heard from the IRS? Sooner or later they probably will.

• Send any correspondence to the IRS via certified mail, return receipt requested.
• Always maintain a good audit trail—all correspondence relating to the notice, such as copies of canceled checks, receipts, tax returns and letters.
• If the IRS does not respond within 6 weeks (8 weeks at most), send the IRS a copy of the correspondence, write “Second Response” on the top, and include the date of your first response. Tip: Include clearly marked copies of all prior correspondence with the IRS.
• If you do not resolve the problem in three attempts, use the IRS Tax Payer Advocate’s office.
• If you realize that you owe money and it was an honest mistake, ask for an abatement of penalties. Intent and past “good faith efforts” to make timely deposits may well result in penalties being abated.

Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 54.5 cents for every mile of business travel driven, up 1 cent from the rate for 2017.

Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 53.5 cents per mile for business miles driven, down from 54 cents for 2016
• 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
• 14 cents per mile driven in service of charitable organizations

The 2016 standard mileage rate for transportation or travel expenses is 54 cents per mile for all miles of business use (business standard mileage rate).

• 54 cents per mile for business miles driven, down from 57.5 cents for 2015.
• 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015.
• 14 cents per mile driven in service of charitable organizations

The IRS generally does not require that records be kept in a specific way, but all documents that may affect a tax return should be retained.

Small business owners must keep all employment tax records for at least 4 years after the later of when a tax is due or paid.

The case: X had some deductions denied in audit. He claimed that in at least two previous audits the same deductions were allowed, so the issue had already been resolved in his favor by the IRS, and the result should be no different this time.

Held: For the IRS. Failure to challenge or examine an item on a tax return in an earlier year is considered a mistake of law by the IRS and so does not prevent a challenge in a later year. The IRS can correct a mistake of law any time, even if the taxpayer relied on the mistake. [Aleamoni v. Comm., T.C. Summ. Op. 2016-21]

AIPB tip: When you have a recurring expense or other tax item, do not assume it is valid because it survived an audit. Continually monitor tax rules, your recordkeeping, and how your transactions are structured, and ways to reduce or eliminate potentially risky issues with the IRS.

The IRS is drawn to returns that claim home office write-offs because it has found great success knocking down the deduction and driving up the amount of tax collected for the government. If you qualify, you can deduct a percentage of your rent, real estate taxes, utilities, phone bills, insurance and other costs that are properly allocated to the home office. That's a great deal. Alternatively, you have a simplified option for claiming this deduction: The write-off can be based on a standard rate of $5 per square foot of space used for business, with a maximum deduction of $1,500. To take advantage of this tax benefit, you must use the space exclusively and regularly as your principal place of business. "Exclusive use" means that a specific area of the home is used only for trade or business, not also for the family to watch TV at night, or as a guest bedroom or children’s playroom.

Don't be afraid to take the home office deduction if you're entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.

For entertainment activities to be deductible by your firm under §274, they must meet each of four requirements:

1. The person(s) from your firm must have had more than a general expectation of deriving some income or other business benefit at an indefinite future time.
2. During the entertainment period, the people from your firm must have engaged in a bona fide business transaction other than entertainment for the purpose of obtaining such business benefit.
3. The principal character of the combined business and entertainment was the active conduct of your company’s trade or business.
4. The expenditure was allocable to the person(s) with whom those from your company engaged in the active conduct of its trade or business during the entertainment.

AIPB Tip: Review your recordkeeping requirements for specific expenses. Auto, cell phone, travel, meals and entertainment expenses require more detail than other expenses. For other expenses, make sure the documents clearly show the date, payee, amount and business purpose of the expense.

To avoid losing money when customers appears to be paying their bills, watch for these red flags:

Restrictive endorsements. Depositing a check marked “Payment in Full” can be a mistake if you want to recover more on the account. This phrase may appear on either side of a check or in an accompanying letter. If an account is “disputed” (debtors can find ways to “dispute” almost any account) and you deposit the check, most courts will hold you to the wording. AIPB

Back up data files at the end of each tax year so have a file with complete, but limited data. Some software programs allow you to provide a file in which data for any periods not under audit are condensed or archived. -- Tax Notes Daily