ILLMAS Posted August 4, 2020 Report Share Posted August 4, 2020 IRS disallowed $15,000 (1/2 of meals) in meals on the tax return, do I make an adjustment for the $15K or the $30K, to remove the whole amount from tax return and books to match the retained earnings calculated by the IRS? Quote Link to comment Share on other sites More sharing options...
Lee B Posted August 4, 2020 Report Share Posted August 4, 2020 Since you mention retained earnings, I assume you are referring to a C or S Corp? What you have is a Book - Tax Difference which is a Schedule M-1 adjustment for an expense recorded on the books which is not a tax deduction. There is no book entry needed. 2 Quote Link to comment Share on other sites More sharing options...
Sara EA Posted August 5, 2020 Report Share Posted August 5, 2020 Does anyone here question a client when they submit some huge figure like $30k for meals or 62k in mileage, especially if their gross doesn't seem to warrant such expenditures? I know we're not required to audit clients, but I wonder how others approach seemingly unreasonable figures. 3 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted August 5, 2020 Report Share Posted August 5, 2020 Well, I question odd amounts or expenses 'for clarification.' I do very few businesses now, just a handful of Sch. C's but when I did others, if the client survived my first tax prep year, I felt reasonably confident in subsequent years. I lost a few clients along the way and did not regret it. After all, I had to sign the return, too. When folks tried to claim deductions for 'bags' of used clothing, I refused to provide the value. I also would point out that the work valuing the donation could be a further contribution and ask about the true reason for the donation - charity or tax deduction? Typically the deduction would end up not being worth their valuable time to value it. 4 Quote Link to comment Share on other sites More sharing options...
RitaB Posted August 5, 2020 Report Share Posted August 5, 2020 2 hours ago, Sara EA said: Does anyone here question a client when they submit some huge figure like $30k for meals or 62k in mileage, especially if their gross doesn't seem to warrant such expenditures? I do. 4 Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted August 5, 2020 Author Report Share Posted August 5, 2020 17 hours ago, cbslee said: Since you mention retained earnings, I assume you are referring to a C or S Corp? What you have is a Book - Tax Difference which is a Schedule M-1 adjustment for an expense recorded on the books which is not a tax deduction. There is no book entry needed. Thank you Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted August 5, 2020 Author Report Share Posted August 5, 2020 11 hours ago, Sara EA said: Does anyone here question a client when they submit some huge figure like $30k for meals or 62k in mileage, especially if their gross doesn't seem to warrant such expenditures? I know we're not required to audit clients, but I wonder how others approach seemingly unreasonable figures. Seem like it’s a big about but it actually about .001% of the gross income and the auto expense exceeds $100K 3 Quote Link to comment Share on other sites More sharing options...
Catherine Posted August 6, 2020 Report Share Posted August 6, 2020 On 8/4/2020 at 9:10 PM, Sara EA said: Does anyone here question a client when they submit some huge figure like $30k for meals or 62k in mileage, especially if their gross doesn't seem to warrant such expenditures? Absolutely I question them. I don't question what looks in-line with prior years. I do question when something is suddenly out of whack, or a new client, and every one of them are told that while I don't need to see the logbook or the receipts, if they are audited they will be required to provide them to the IRS, and these amounts are high enough to be a red flag. Now that you know this, client, is this still the correct figure? And I document that I have asked them (usually by email, and I print the email and response to pdf in the folder for the correct year). 3 Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted August 7, 2020 Report Share Posted August 7, 2020 I always question them and advise them as Catherine has said. I tell them I don't want any surprises in an audit. Also, if it is a new client, they get questioned a bit harder and if I think I smell a rat, then I set them free. Agree, document. I use Drake and keep notes in the client file. I add the date and time along with the details. I show it to the client for their approval. 4 Quote Link to comment Share on other sites More sharing options...
RitaB Posted August 7, 2020 Report Share Posted August 7, 2020 1 hour ago, Terry D said: ... Also, if it is a new client, they get questioned a bit harder and if I think I smell a rat, then I set them free... I like to say, "If you drive at 60 mph, and work seven days a week, you're driving 2 hours and 45 minutes a day for your work. Imagine how much money you'd make if you found a job where you didn't have this excessive travel burden." If they don't recheck their log, I'm with Terry, it's a catch and release. 6 Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted August 7, 2020 Report Share Posted August 7, 2020 I don't look good in jumpsuits, and I worked too hard to get my EA certification. Some clients just are not a good fit. Better to figure it out sooner rather than later. 5 Quote Link to comment Share on other sites More sharing options...
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