How Much Is Too Much???

Discussion in 'Business Operations' started by cmorris, Feb 1, 2005.

  1. cmorris

    cmorris LawnSite Member
    Posts: 44

    I just got done adding up all my 1029 forms and income statements. This is the first year for me and it all added up to around $27,000. I then added up all of my receipts and ended up with a profit of around $4000. I did buy alot of tools and mulch. I do this part time and am going to the tax lady tomorrow. Did I do this the right way????? :[
     
  2. tonygreek

    tonygreek LawnSite Gold Member
    Posts: 3,394

    what do you mean by too much? too many deductions or....? either way, i'm sure she'll help you.

    p.s. - when you say "profit", is that the total you paid yourself (salary) or is that the amount that was left after you paid yourself (profit)?
     
  3. PR Fect

    PR Fect LawnSite Bronze Member
    Posts: 1,074

    Morris, first year and you did $27,000 part time? And you made a profit? We need to talk. We are part time also, just filed for the 4th time. Made about $2,000 profit after all expenses. But with carryover from past years, did not show a dime. All of our stuff is paid for. We run a two man crew on the big jobs, but most are just me. Plan on making money next year. Lucky number 5 payup
     
  4. MMLawn

    MMLawn LawnSite Gold Member
    Posts: 3,569

    On a new business (most any type also) you can get by with a loss in the old income tax department for the first 2,maybe even 3 years with no problem. However, show no profit after that period and I guarantee that it is only a matter of time before you will get that dreaded letter from the IRS informing you of the time,date and place of your new audit ;) as they will question why any business is not either turning a profit or closed due to that after about 3 years.

    Also remember this as it came to me STRAIGHT FROM THE IRS AGENT that did my last audit. :eek: after asking why they were just now saying I owed even more than I paid on my 2000 business taxes. On businesses ONLY they always run 3 years behind the actual filing dates on the "inspection" of the filing. In other words this year they will be looking at 2002 filed taxes in reviews and they look at all businesses that have employees at some level even if it is nothing more than comparing their yearly 941's to the yearly W2's, W3 and W4 filed to make sure they match. So as I said if you show several years of losses expect to either get that letter or one day they will just walk into your office and show you that nice shiney ID.
     
  5. sanfordandsonfan

    sanfordandsonfan LawnSite Member
    Posts: 103

    I have been doing some research in regards to the irs and audits. According to many articles, very few people or companies actually face an "interview" type audit. Most audits come in the form of mailing back the necessary paperwork to justify a particular deduction. I'm not a CPA or and IRS auditor, just a guy who has been doing some reading. Here is a question that I would pose. How do the large corporations continue to post muli-million dollar losses each quarter, and you never hear about the IRS kicking in the door. Just turn on CNBC and you will hear about company after company that is in the red. Many for the last five to ten years. I just dont get it.
     
  6. tonygreek

    tonygreek LawnSite Gold Member
    Posts: 3,394

    " How do the large corporations continue to post muli-million dollar losses each quarter "

    the IRS terms this a "profit motive". it's conceivable that your business could exist in perpetuity w/o ever netting a dime, but you must be able to demonstrate that you are "trying" to make money. don't quote me on this but i think you have to show a profit in 3 of 5 years (anyone?) to keep the irs from looking into you on that basis alone. if you want to avoid an audit on that basis alone, you could file a form that precludes it for 5 years, but it must be filed in tax year 1.

    as for why small business is more likely to be audited, it's because many people use them to either hide income or support a hobby. that's why you might have to justify your entity's existence. if microsoft posts a loss every year for the next 10 years, there's no doubt as to their attempt at being profitable**. car racing is one of those hobbies that would fall under the "not trying to make money" businesses because typically, it's a hobby with no shot at earning anything.

    **although as andersen, kpmg, and other accounting firms have proven that the line can grow hazy when it comes to determining what is a profit or loss - or revenue, for that matter ;)
     
  7. sanfordandsonfan

    sanfordandsonfan LawnSite Member
    Posts: 103

    very nice post tonygreek.
     
  8. PR Fect

    PR Fect LawnSite Bronze Member
    Posts: 1,074

    So it really does not mater if you file a loss or not, just so long as you have the paperwork to back it up, and you really did try to make money.
     
  9. MMLawn

    MMLawn LawnSite Gold Member
    Posts: 3,569


    Yes Tony that is exactly correct and why I posted that just above the question sanford ask. I received that info straight from the IRS....during an Face to Face Audit ;) So, yes Sanford they do happen. :)

    Also those big corps you are talking about filing the losses, also showed many years of profits too though. The airline industry would be a perfect example.
     
  10. tonygreek

    tonygreek LawnSite Gold Member
    Posts: 3,394

    mmlawn, i remember hearing an airline stock analyst on cnnFn one day saying that in the entire history of powered flight, the entire airline industry had only shown a $400m profit. never looked to see if it was factual, but it was amusing as hell...and why i've never owned an airline stock.

    tony
     

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