Chapter three: eight tax beliefs that sound reasonable, are widely repeated, and are wrong in ways that cost business owners money.
A truck driver named Bill sat across from me during an audit when I was an IRS agent. He was convinced he had done everything right. Every receipt organized, every travel log maintained.
There was one problem. The tax rule he had been relying on for years did not exist.
Chapter three of my book, The IRS Survival Guide, goes through eight misconceptions that cost real business owners real money.
Watch my full video on this topic below, or watch on YouTube.
This is the one that got Bill. He drove locally, a few hours out and a few hours back, home every night, and deducted thousands in meal expenses as a transportation worker.
Meal deductions for transportation workers require being away from home overnight. Day trips do not qualify. Tax law treats it the way it treats an office worker who could bring lunch from home.
The broader rule: meals are generally personal expenses. To deduct one as a business expense it has to involve business travel with an overnight stay, or be directly tied to a business meeting with a documented purpose, attendees, and a connection to your work.
The IRS requires exclusive and regular use. Your dining room table does not count. A dedicated room used only for business does.
You can deduct the business use percentage, not personal use. And you need a contemporaneous mileage log, not a figure you estimate at year end. Log the trips as you go.
This mistake came up constantly among the taxpayers I audited.
It can be. The pay has to be reasonable, the work has to be real, it has to be documented, and payroll has to be handled correctly.
The IRS scrutinizes family payments more heavily, because they know how often someone pays their kids for the deduction without any real work behind it.
If you are audited, the IRS will run a bank deposit analysis, look at cash inflows and outflows, and match any third-party data it can find.
All cash income is taxable. No paper trail does not mean invisible.
An extension gives you more time to file. It does not extend the time to pay. Taxes are still due on April 15, and penalties and interest accrue from that date whether you extended or not.
The three-year statute generally applies to returns with reasonably accurate income. Underreport by 25% or more and it becomes six years. Commit fraud and there is no limit at all.
The general rule is right. It is the exceptions that catch people.
The $600 threshold is a reporting obligation for the person paying you. It has nothing to do with your obligation.
All income is taxable whether or not a 1099 shows up. And you may well not receive one for payments much larger than $600, either because the payer never filed it or because an exemption applied.
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