b&b 147 Former IRS Auditor, Arielle Bryant, answers all the questions you have about taxes
Audits. You’re scared of them. We’re scared of them. But what exactly is an audit? How do we prepare for something many people avoid discussing?
This week’s guest, Arielle Bryant worked for the IRS as an auditor for five years until transitioning into nonprofit, first at Start Small Think Big. Currently, she is based in Austin, Texas, where she founded Zenny Penny, where they focus on money management for various business.
This episode is for anyone who has zillion questions about audits, or maybe just want to learn a little more. Plus an extra segment for all you “new adults” out there. Lil Raq, our podcast intern, asks Arielle for advice on how young adults can prepare and what we all really should know about taxes. Take a listen!
Music featured this episode:
Summer Everyday- Dizzy Senze
Welcome – Nossis
Seize the Day – Happy Accident
Zenny Penny’s site:
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Arielle Bryant: Usually what happens [is] someone says they can get you a larger refund than someplace else and then suddenly they put some stuff on your tax return that you don’t actually know what it is or that it’s even there. You don’t even know necessarily to look for it, and then an IRS auditor shows up and is like “Please, tell me about your business loss on your tax return,” and they’re like “What business?”
Arielle Bryant: Lots of times those types of preparers won’t sign the tax return. They’ll be what’s known as a ghost preparer. So they’ll prepare a lot of tax returns and they’ll be very shady and incorrect, they’ll get paid for them, and then when it comes to finding who prepared those tax returns tracking them down is very difficult.
Arielle Bryant: What the IRS would say [about audits] is that it is random, but it’s computers picking tax returns, and so if there are red flags…Basically, for businesses, they’ll look at the industry that you’re conducting business in and what’s normal within that industry as far as deductions and revenue and look for anything that looks large, unusual or questionable…They also do, beyond that, random audits…It’s not always necessarily because you did something wrong.
Arielle Bryant: You have to substantiate all the deductions on your tax return. So, if you haven’t provided anything to support the deductions on your tax return they could decide that you’re not really allowed to deduct them.
Arielle Bryant: Save your bank statements, save all of your receipts if you have a business for record-keeping purposes, and that way if it ever comes up you’re prepared.
Arielle Bryant: Make sure too, if you’re not gonna prepare your tax return yourself, that, if you see something strange on your tax return, just ask your accountant about it.
Arielle Bryant: I’ve had CPAs that represent their client in an audit and they’re to just give you a binder of everything that you request…so all the questions are answered quickly and it can be done I guess like two months maybe, but audits can take a long time but it’s not very friendly or professional to have it go on for a long time.
Arielle Bryant: [Signs of a shady accountant:] one of them would be guaranteeing that you would get a higher refund than somewhere else, another thing might be that they’re preparing your tax return based on a percentage of your refund….their credentials. They don’t necessarily need to be credentialed but they have a PTIN? Preparer Tax Identification Number…so it’s a way of identifying who prepared your tax return…Not signing your tax return, that’s an indicator that there might be something wrong with your tax return.
Arielle Bryant: We should all be aware of what’s going on with our business, our tax return. We should be keeping good records. We should be looking at our tax return because you’re signing it, and asking questions what’s on there.
Arielle Bryant: The [bookkeeping] software I use right now is QuickBooks and Wave, I’ve heard of Zero, I’m gonna learn that soon.
Arielle Bryant: Anything that they use personally and for business as well. So, like your cellphone or maybe some meals and entertainment, and while this is a common audit issue, you still can deduct part of your meals and entertainment, or your travel expense. So the way you look at it is your business used percentage. So if you use your cellphone for business purposes 40% of the time or 60% of the time, then that means 40% or 60% of that bill is deductable on your tax return.
Arielle Bryant: In New York, a lot of people are worried about their metrocard, or are scared to even put it on their tax return, but if you’re using that for business purposes then you should deduct that on your tax return.
Arielle Bryant: There’s an explanation for every line of your tax return on what you can deduct out there…Look up what goes on this line.
Arielle Bryant: You could go back and sue someone if they did something totally wrong on your tax return, but as far as the IRS is concerned you signed your tax return and you’re responsible for what’s reported on it. But then the IRS does also try to shut down bad preparers.
Arielle Bryant: The 1099…is what the business owner, in most cases the business owner issues to someone who does contract work for them, if they make over $600.
Arielle Bryant: So if you actually make a mistake, sometimes there’s penalties and interest added on to whatever your additional tax liability is, and sometimes, if you made a reasonable effort to pay the right taxes, then they might not apply penalties. But then, they’ll issue a report and you’ll work out an agreement for payment and if you can pay right away then that’s great, goodbye IRS, but if you can’t then you can also sign up for an installment agreement and pay over time.
Arielle Bryant: If you can get a bookkeeper, I would recommend getting a bookkeeper for sure…There’s a lot of great tools out there but you’re not an accountant, you’re not in business to be an accountant, and so it can be confusing as to how to classify things.