Everyone is looking for ways to keep their money out of the government’s hands. We all have a little fear in our hearts where the IRS is concerned, and we definitely resent them when the tax return reveals we owe them money. Write offs are good if they’re honest. However, even honest people can be audited, so keep good records to satisfy the IRS. This is especially true if you own a business that has a lot of cash income.
Small restaurants and food trailers handle a lot of cash. So do bars. If the business is continually “losing” money, the IRS will come calling. They’ll want to see daily balance sheets, your register tapes, and they may even want to look at your personal expenses. Not only will they question income, but they may also question business expenses, so if you called it an expense on your tax return, you better have a good paper trail to prove it.
Musicians are also audit targets because they operate mostly with cash. They use tip jars, door cover, and CD sales to make a living. They also have very high expenses with equipment, travel and mileage, and promotions. It’s very tempting to make beer with the band a business meeting expense. If receipts are missing or look questionable, there will be trouble with the IRS. It’s best to be honest about what comes in and what goes out. If you’re an independent musician, you’re probably not going to get into a situation where you owe money, simply because your income is too low.
Keep all documents categorized, organized and easy to access. Just in case!