I have a client (1st Year as Client) that uses his vehicles to escort wide loads on the highway. The prior tax year shows a 9000 dollar loss schedule C and tax Lia of Zero on the 1040. The big reason for the loss on the C is he claims Standard Mileage Deduction. He has been doing this several years and seems to claim a loss each year. He draws Social Security and his wife has a W-2 job. They end up with tax lia of zero and refunds each year. This year the Sch C loss will be 25,000 . He says he can prove his mileage. Does anyone have any comments on this. The business is one that is based on miles but I am concerned of maybe it being called a hobby or audit issues. Any comments or thoughts on this. Thanks in advance
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I'd say if hes being paid per the mile.. you cannot take a mileage deduction (think semi driver).. because it will always be a loss. You would in this case do actual expenses.
My .02
Chris -
Additional Thoughts
He has 63000 in gross income on C and 40,000 dollars from 3 vehicles at .55 standard mileage. And another 40,000 dollars of 1099 expense,etc.Comment
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I would want to know, too, what other expenses he has. Maybe lodging and meals.Comment
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Response
The 1099's are for the payment made to drivers that the taxpayer uses to help.Part of the expenses besides the mileage are for motel,etc office at home.Comment
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This client would not like me at all.... There is NO business reason why this client would do this year after year in an effort to make an income. I don't believe he has all these expenses..
I would send him on his way, as I don't have time for such a fool............This post is for discussion purposes only and should be verified with other sources before actual use.
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comments
It sounds to me as though you are deducting the amounts on the 1099s when I think they are income. I could be confused on that point.
When I have a taxpayer with a net loss such as you are describing I insist on documentation of every dime of alleged expense. I check for legitimate business purpose as well as whether the expenditure was made.
Finally I would say that the numbers you are giving us if correct do not add up to zero income but rather to a Net Operating Loss. Look that up in TTB if you're not familiar with it. I would make this client pay me to amend as far back as is possible (not sure if that is three years or longer) if he wants me to help him. If it has been forever since he paid tax the NOLs may never benefit him but failing to report them when they happen leads to an incorrect return.Comment
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I agree that something doesn't sound right. I would also ask for documentation like bank statements, etc.Comment
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Let's see 72,727 miles @ .55 mile = $40,000. I believe escort vehicles earn about $1.50 per mile. 72,727 x 1.50 = $109,090.
I'm no expert, but the $60,000 being reported doesn't pass the "smell test" based on the mileage.
I did a quick check for rates for escorts, and only looked at the following link.
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Thanks for the advice
Thanks for all the help . I will do more research today. After all the responses I am going to have a discussion with this client. If the answers are not what I need I am going to tell him to go back to his former tax preparer.Comment
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Detective
Zee. I like those figures. He could still get per diem for food per day. Changed during the year let's say $38 x 50% X 160 (days) = $3,040 and hotels 158 x 75 = 11,850. Expenses total $54,890 income $109,090 = $54,200. That would average out to 383 (low) miles a day. Does he have a profit motive???
Something does not seem right. Maybe he changed preparers for a reason, or he is a TV plant to she how returns are being prepared.?Comment
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This post is for discussion purposes only and should be verified with other sources before actual use.
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