Discussion:Cel phone charges on a Scary Return

This return is just scary. She's claiming 49K miles but has spotty logs. Her thinking was that she only uses this car for business travel - her and hubby owe 4 vehicles - so she didn't have to log the miles. She does have supporting docs regarding travel, but she's just using the total miles put on the car.

The hubby was paid 14K with a 1099-Misc, but I just feel he's an employee. He's not a contractor and basically works for one entity in the trades. He has no expenses other than mileage (11K). Even that's spotty...no logs...just a vehicle used for work only. He has no set place of employment. Here the scary part is not knowing the commuter miles.

I have no qualm filing for an extension...it's just that I hate last minute client referrals that are headaches. Damn these people that don't keep records.

It just doesn't look right - between the 23K in business exp and 10K in int/taxes/ect they are itemizing 33K out of a 49K AGI.

1) You (We as preparers) need to educate them on what happens if audited. Get an engagement letter that clealry spells out that they must supply supporting evidence. It's good for both of you. I also hate clients like these.

2) For her AMT will most likely kick in VERY soon and you will not need all the expenses. This should tone down the 33K and if you explain it to them, they just might surprise you.

3) Only deduct the mileage he tells you, on a schedule C.

As far as the cell phone, I'm reading more and more that 100% deduction is not good, even for SE people, bc they also get personal calls on their phones. I find that pretty silly bc every employee I know also uses their desk phone for personal calls. I would be less hesitant about taking the entire data card bill, since most people will not have one of these on their own, not yet anyway.

I was having a problem with her miles based on her beginning and end odometer reading and more so with the husband. Of his total miles, there's no way to determine the non-deductible commuting miles or the deductible job-to-job or out of metro area miles.

Basically, what do you do when the client's records are dodgy? It's not my job to audit my clients, I try to educate them to make audit-proof. But in this case, after the fact, their records suck.

The husband's travel is over 60 miles one way to various job sites. He's in the process of getting some type of docs from his employer to at least substaniate his mileage. The clients were appreciative of the fact that I educated them on the recordkeeping requirements since '07 was the first they had those types of expenses.

This return is looking less spooky.

A taxpayer may claim a deduction for cellular charges when the phone is used exclusively for business (emphasizing exclusively) or additional business related charges are incurred (emphasizing additional). The additional expenses must be substantiated by the amount of the expense, time and place and the business purpose.

I suspect that according to IRS interpretations about 90% of cell phone expenses taken would not be allowed. I know I do take a lot of cell expenses for clients but I don't like it.

Some references, Russell B. Ritchie (T.C. Summary Opinion 2005-181), Norman E. Kennelly and Selma Kennelly (56 TC 936), William C. Stolk and Eve Stolk (40 TC 345 (1963)), Christopher D. Farran et ux (TC Memo 2007-151)

50 to 80% should be fair. I tell my clients to put their cell phone number on a business card, and to get it added to hard copy and internet directories if it is truly business. Might not fly by the IRS but it strengthens your argument.

The House passed "The Taxpayer Assistance and Simplification Act of 2008 (H.R. 5719)" yesterday which begins reform in the area of employer provided cell phones. Now if this provision defines the self-employed as an employer, you will be part-way there.

More interesting is this in http://taxprof.typepad.com/ "House Proposes Seven Tax Code Changes to Help Small Business" about the House Small Business Committee's ideas.

Regs/Law/Code all crud I need to understand. I don't always separate, I just try to know enough to keep it real. lol.

They do need to keep up with the times though.

If you want to sleep at night - then be very conservative - why take the risk of deducting 70-80% of cell calls and auto expense - without solid records - unless the Client underwrites the premium. In a sense, risky returns should be more expensive - just like risky drivers are.