Dollars & Sense

IRS audit help and business plans

IRS help
We received an interesting phone call yesterday from an OOIDA member who was going through an IRS income tax audit. 

The OOIDA member has an S corporation and claimed the per diem deduction using Department of Transportation rules for truckers.  The Auditor wants to disallow the per diem deduction.

The Auditor happens to be correct because if you are the owner of an S corporation and driving the truck, you are not allowed to claim the per diem deduction on the S corporation tax return.  You, as the owner-driver, must claim the per diem deduction on your individual income tax return. 

The S corporation can reimburse the owner/employee for actual meals on the road if you, as the employee, provide the receipts. 

The S corporation would then be entitled to the deduction as applies to the Department of Transportation rules. 

The Auditor in the above referenced question told the OOIDA member he can go back and claim the per diem on his personal income tax return, but he would not be allowed the percentage in force for transportation workers, and could only deduct 50% of the per diem rate. 

His reasoning was that since there were no motel receipts, he is not able to claim the extra percentage for the transportation workers. 

The Auditor is clearly wrong.  The taxpayer would be entitled to the greater percentage allowed for drivers under the Department of Transportation Rules.  There were also other strange issues where the Auditor proposed adjustments. 

The point of all this is that if you are up against an Auditor who is, in your opinion, acting unreasonably, there are avenues available to you:

•You can request a change of Auditors.
•You can request that the manager of the audit group become involved and discuss the issues with him.
•You can contact the taxpayer advocate service.  The current phone number is (877) 777-4778.
•You have the right to appeal the case.  Most appeals can be handled with simple hearings with an appeals officer.

Business plans
When starting a business, you will need a detailed business plan. 

Your local Small Business Administration office has many resources for anyone ready to explore starting a business including the important, yet often complex task of how to write an effective business plan.  Putting a plan on paper forces you to think through important issues your business will face. 

According to the SBA, a business plan should contain details about what the business will do, as well as important information regarding marketing, financing, and management.  A business plan should also include all proposed equipment purchases or leases, financing methods, and start-up costs.

Every business plan must include an executive summary and supporting financial documents, such as tax returns, personal financial statements, and resumes of the principals and key personnel involved in the business.

Now that you have written a well-thought out business plan, if you are seeking funding from a bank or other lender, the next step is a well-crafted loan proposal.

Be sure to include in the loan proposal a summary of the loan, who you are, the total amount of money you need, and how you intend to pay back the loan. 

Clearly indicate the action you intend to take to be financially accountable in the event you cannot pay back the loan through your originally stated pay back method. 

In your loan proposal, write a description of your business, a brief overview of its history, and a summary of current activities.  Include your projected income and cash-flow statements for the next two to three years.  Make sure your projection is clear and realistic. 

Finally, include business and personal financial statements that give a you and the lender a clear picture of the financial stability of you and your business.

This article has been presented by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for over a quarter century.  Contributions to this article were made by Shasta May, Director of Business Development for PBS.  If you would like further information, please contact us at 800-697-5153.  See our Web Site at www.pbstax.com.

“Everyone’s financial situation is different.  This article does not give and is not intended to give specific accounting and/or tax advice.  Please consult with your own tax or accounting professional.”