Tax Lawyer's Blog

Thursday, October 15th, is the last day taxpayers can file their 2008 individual income tax returns without incurring a late filing and late payment penalty. But what do you do if you don’t have all of the information necessary to complete your return? 

Many unincorporated, self-employed taxpayers fail to keep adequate books and records from which a business tax return can be prepared. But this doesn’t mean these taxpayers can’t claim business deductions against their business income. It merely means they will have to make reasonable estimates of their deductible business expenses and disclose  to the IRS the fact that they are making those estimates.

For taxpayers who have kept few or no tax records, we recommend they use the website BizStats as a starting point in making their business expense estimates. Here is in example of how BizStats works:

Assumptions:

Dee Liver is a long distance freight trucker who was paid $200,000 of gross income in 2008. He has kept no expenses records and does not know how much he paid during the year in business expenses. 

Steps:

1.  Go to the BizStat main page and where it says “Or customize an industry Profit & Loss statement in 30 seconds” enter $200,000 in the annual sales box, select Sole Proprietorship’s and press “Go:”

This will take you to the following screen:

Accommodation-Food Services-Drinking Places
Agriculture-Forestry-Hunting-Fishing –>Agriculture-Forestry-Hunting-Fishing
Arts-Entertainment-Recreation –>Arts-Entertainment-Recreation
Construction –>Construction
Finance-Insurance –>Finance-Insurance
Health Care-Social Assistance –>Health Care-Social Assistance
Information –>Information
Manufacturing –>Manufacturing
Mining –>Mining
Other Services –>Other Services
Professional-Scientific-Technical Services –>Professional-Scientific-Technical Services
Real Estate-Rental-Leasing Services –>Real Estate-Rental-Leasing Services
Retail –>Retail
Transportation-Warehousing –>Transportation-Warehousing
Wholesale –>Wholesale

2.  Click on the business category that best describes your business. In this case, Dee Liver would click on the category “Transportation-Warehousing.”

This will take you to the following screen:

Transportation-Warehousing
     Air-Rail transportation
     Water transportation
     Local freight trucking
     Long distance freight trucking
     Urban transit
     Interurban and rural bus transport
     Taxis-Limousines
     School-Employee-Charter bus services
     Other transit and ground transport
     Scenic-Sightseeing transport
     Transportation support services
     Couriers-Messengers
     Warehousing-Storage facilities

3.  Click on the sub-category that best describes your business. In this case, the business is “Long distance freight trucking.”

This takes you to the following detailed schedule of the average expenses of long distance freight truckers for the year 2006:

 4.  Then click on “Other SG&A Exp. SEE DETAIL” to get a detailed breakdown of other expenses:

Warning: BizStats should not be used as a substitute for good record-keeping. It should only be used as a starting place for estimating your business expenses in the event that your business records are incomplete. Also, whenever you use estimates it is critical that you attach a statement to your tax return disclosing that fact to the IRS. If you don’t do this, the IRS could charge you with intentionally filing a fraudulent tax return.

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