A SCH C professional while driving on business hit a stationary vehicle and ended up paying the owner out of pocket thus leaving the insurance companies out of the loop. Vehicle being driven by the professional is suitable only for and used only for business. Deductible expense? Does it matter whether the collision was away from or in the general area of the taxpayer's main tax home? Note - amount paid was under $700 so it isn't worth a fight.
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Are you not supposed to exhaust all your resources first? i.e. report it to your insurance company for recovery of your loss.Dave, EA -
interesting point
He's not trying to deduct the expense of fixing his truck in fact I'm not sure there was any such expense. But he wants to deduct what he paid her to settle her claim and I'm not sure he can. I do know that if he had gotten his insurance company to reimburse her then he could have continued to claim the (increased) insurance premium on the truck as a business expense so I guess I can kind of see his point of viewComment
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Most likely, the insurance company would not pay such expense anyway. So, I would probably go ahead and deduct it and ride out of Dodge as JM would say.Dave, EAComment
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I have always been under the impression that if a loss was covered by insurance, but you elected not to recover via the insurer, then the loss was not deductible. But this applies to casualty losses of non-business property. IRC Sect 1137. This would not be a business "expense" IMO, as it does not meet the ord and necessary rule. It would not be a loss on 4797, since he did not own the property. How exactly were you thinking of deducting it?Comment
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Interestiing Point
This is a client who is being audited and the original preparer (who does not offer audit defense) appears to have claimed it among repairs and maintenance.
Needless to say I'm not too impressed with this return. More lines are wrong than are right although most of the errors were in favor of the taxing agencies. It looks like there was the intent to claim mileage but that didn't happen for some reason. The other repairs and maintenance were a paint job and oil changes on the guy's truck.Comment
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Erchess, I am just curious as to why you would agree to represent someone who had their return done by another preparer.DIY programs are not a replacement for a good tax proComment
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For a lousy $700 the IRS is auditing this TP?
Lets see. If I had to choose between 2 prospects; prospect 1 has $200K for a fixed 5 yr annuity and the prospect 2 has $10k for a fixed 5 yr annuity. Which would I choose.....dah prospect 1. I guess I think differently then the IRS.Comment
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After some additional thought on this, I would add it to the employees wages and then ride out of Dodge.Dave, EAComment
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Responses
DSI there is no employee involved.
If no one would represent clients other than when they prepared the returns then a lot of people would go unrepresented. I rarely have to represent a client when I prepared the return but I do take returns prepared by others. I go through the returns and the records with a fine toothed comb. If something that was done seems at at all defensible I defend it while perhaps offering to promise that in the future such items will be handled differently. If something that was done is not defensible I am prepared to admit so and I try to calculate what the number on that line if any should have been. For example on the return I was defending there was obvious preparer fraud with respect to charitable deductions on Sch A and casual labor on Sch C as well as quite frankly an error in virtually every entry on the thing. However there was mileage that had been entered on Sch C but for some reason had not carried to the front of the form. There were also a couple of expense items that had been understated by thousands of dollars. All in all it was a no change audit and everyone is happy. My client knew nothing of the errors and the preparer in question was already under investigation by the State. I did not get this today from NCDOR but apparently this preparer puts down exactly $400 in noncash contributions on every Sch A where the client does not come in claiming more. They also change whatever amounts a Sch C Filer says he paid for casual labor to $400 a person..
What triggered the audit was the Sch C Loss although while he was in there he did look at Sch A. The auditor was a very fine man and I am proud to have met him. You just could not have asked for a fairer hearing. He wanted the tax that was due if any but he was very fair when confronted with persuasive evidence that on balance none was.
When I take on a client for representation we do a handshake agreement that they will let me prepare at my normal fees their future tax returns. I also charge what this market will bear for the representation. So far no one has left me after I represented them. One in particular has referred fifteen friends most of whom are among my richest clients.Comment
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Hey, I represent people all the time when I haven't prepared the returns. Its my job!Comment
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Back to the original question. You said it was a no change audit, so I assume it is completed. What did the auditor say about the deduction for payment of liability for the accident to other party? Just curious.Comment
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Not Questioned
The auditor skipped over the line where the collision was claimed but honestly the mileage left off was so great that if allowed the rest of the expenses could have been disallowed without the taxpayer having to pay any additional tax so the auditor let us go in peace.Comment
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