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House Flipping turns into a Tax Nightmare

This house just keeps going...

Many of my friends are freelancers or self-employed, and they all hate tax season.

Reporting freelance/self-employment income is easy, but questionable “business expenses” frequently get people in trouble.

WolfofWallStreet

Home offices, mileage, and other business expenses are often poorly documented and misreported.

This can be a huge pain-in-the-ass for an attorney or tax preparer tasked with handling an audit. What typically happens is that the client comes in with a huge box (or boxes) of old receipts, bills, and other documents, and it is up to the attorney to figure it out.

Cases get even more complicated when an entrepreneur has multiple lines of business – not only is there a tendency for the taxpayer to mix her personal expenses with business expenses, but entrepreneurs love mixing the accounts of their businesses together as well.

It’s awful for the IRS and the attorney to deal with. That is one of the reasons why these types of audits are hard for a taxpayer to completely overcome, and why the IRS is often eager to settle.

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