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 In
Glenn Wilson’s book and seminar, Unlimited Profits with Partners, he
discusses some of his client’s greatest fears: Being audited by the
IRS and outliving their nest egg.
The IRS Audit
Lets look at a typical IRS audit. Those most likely to be audited are
taxpayers who file a Schedule C, Profit or Loss From Business,
followed by Schedule E, Supplemental Income and Loss (from rental real
estate). The IRS will ask for the following items from the real estate
professional: Book keeping records, mileage, meal, and travel logs, and
will they scrutinize high dollar items. The IRS will not accept credit
card statements as records, only item invoices. Retain your tax
records for seven years from the date of the tax return. You must
qualify what a home office is--a place exclusive to your business.
Along with that, the total square feet of your property in relation to
the square footage of your office will help establish other indirect
costs. Use percentages for items such as utilities, property taxes,
cleaning supplies and insurance. Direct office costs are 100 percent
deductible, including painting your office, fixtures, bookcases, chairs
and all things necessary to run a business.
Improvements and Repairs
Glenn has found that most beginning investors over-repair their first
property. The average person can only write off $25,000 in losses, so
they try to include improvements with their repair. A repair is defined
as something you fix to its original condition. An improvement is
something new like a new patio or a new swimming pool.
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