Shoebox Approach Doesn’t Work for Business Deductions

Individuals may keep receipts in a shoebox for tax purposes, but this approach is not good for a business. In one case, spouses owned and operated 4 nominally distinct but operationally intertwined businesses (one an S corporation; the others LLCs); all provided tax and financial services to clients. The same bank account was used for all businesses and they commingled their business and personal assets. They did not maintain any books or records, general ledgers, or profit and loss statements, or use any accounting software for the businesses. The IRS found deficiencies of $1.7 million over 4 years. The Tax Court refused to allow most of the claimed deductions, including one for a home office. They tried to submit thousands of documents, but the court noted that a truck filled with documents and dumped in the courtroom doesn’t demonstrate evidence that taxpayers are entitled to prevail. #IdeaoftheDay