Home-Based Business Tax Avoidance Schemes
The Internal Revenue Service has issued consumer alerts regarding home-based business schemes that purport to offer tax “relief.” In reality they provide bad advice to unwary taxpayers that, if followed, results in improper tax avoidance.
Promoters of these schemes claim that individual taxpayers can deduct most, or all, of their personal expenses as business expenses by setting up a bogus home-based business. But the tax code firmly establishes that a clear business purpose and profit motive must exist in order to generate and claim allowable business expenses.
Some examples of personal expenses that are not deductible, but are commonly claimed business expenses in home-based business tax avoidance schemes include • Deducting all or most of the cost and operation of a personal residence. For example, placing a calendar, desk, file cabinet, telephone, or other businessrelated item in each room does not increase the amount that can be deducted.
- Deducting a portion of the total house payment is not allowable if the business is not real.
- Paying children a salary for services, such as answering telephones, washing cars or other tasks and then deducting these costs as a business expense is not real.
- Deducting education expenses from the salary wrongfully paid to children as employees is not allowed
- Deducting excessive car and truck expenses when the vehicle has been used for both business and personal use is not allowed.
- Deducting personal furniture, home entertainment equipment, children’s toys, etc. is not allowed.
- Deducting personal travel, meals, and entertainment under the guise that “everyone is a potential client” is not allowed.
