Standard Deduction for Businesses

[dyne]

I looked at the TaxMama cite for the first time in awhile and she has an article about
her suggestion to IRS: Eliminate Record Keeping for small businesses. IRS is
considering her suggestion. See her website for details. She contends that record
keeping of business expenses is a burdon and could be avoided by allowing a standard
business deduction instead of claiming actual busienss expenses. She contends that it
would eliminate a lot of time IRS spends on unneccessary audits (examinations).
I thought I might start another discussion with this.Please guys, I am simply the
messenger for this.

[Uncle Sam]

Standard Deduction for Businesses

It seems to me Dyne, you've got some obsession or hangup about the standard deduction being the answer to tax problems.
The fact is, that a DOUBLE ENTRY bookkeeping system is the proper ACCOUNTING recording system for the preparation of FINANCIAL STATEMENTS for businesses.
For those of you who just are tax preparers and don't get involved in day to day business accounting , you really wouldn't understand the need for it - but it does exist.
If the suggestion was to set up an expense schedule for businesses similar to that of a self employed person's Schedule C - that would make sense.
Any financial lending institution would require seeing a complete profit/loss statement for determining a whole bunch of financial ratios. What good would a standard deduction be? How would you reconcile the equity balance on the balance sheet?
However, you would still need to keep adequate documentation to support business deductions.

[Bees Knees]

I had a client who hadn't filed his return in 10 years. He paid in estimates, close to his actual tax liability, but just could never finish his business books to file a return.

The IRS agent involved with trying to get him to file a return finally suggested that she give him 20% of his gross receipts as a standard business deduction, rather than making him finish his books and account for all expenses on his Schedule C. The guy agreed that 20% was a fair amount.

The returns were filed. IRS was happy. The client was happy. I was amazed IRS would agree to such a thing. 20% of gross without having to prove a dime.

I guess if we want to cater to people's lack of a sense of responsibility, a standard deduction makes sense. It just doesn't seem fair, though, to the rest of us who are obsessed with balancing everything to the penny.

[dyne]

To Uncle Sam

I could not care LESS about the standard deduction.

[Uncle Sam]

Standard Deduction for Businesses

Thanks, Bees, for expressing my view in different terms.
By "simplifying" the corporation tax return process with a "standard deduction" that's going to invite a whole host of other problems - including the false impression that a business doesn't need to keep accurate books because of the fallback and reliance on a standard deduction to get them through.

[skhyatt]

dyne, I understood your previous post very clearly regarding the "standard deduction" and I understand what you are saying here. Simply passing on information. What I don't understand is Uncle Sam's replies to your posts. Seems to be somewhat contentious.