For the last 10 years I’ve had a CPA file my tax returns for me because I am self-employed as a freelance singer and voice teacher (it’s my second job - I have a day job that is uncomplicated from a tax perspective).
My CPA just left town to open a new office elsewhere, and I’m left to decide if I want to bother forming a relationship with a new tax preparer or just get tax prep software and do it all myself since I’m now familiar with the kinds of deductions I can file, etc.
My question is: for someone like me who deducts things like suits, concert tickets, mileage, and sheet music on his return, will coming out from under the safety umbrella of an accountant expose me to extra audit risk? My impression is that IRS audits are far more common for people whose returns were not professionally prepared, and musicians are (anecdotally, anyway) favorite targets.
Any insights would be appreciated.
Thanks,
~fig
BTW, I have 15 years of professional history as a singer/teacher and several degrees to support the fact that it’s a profession and not a hobby, so I don’t think I have any worries along those lines. It’s just the audit risk that worries me.
The thing about hiring a CPA - especially one who can represent you in front of the IRS - is that if you do get audited, they’ll step in for you.
Taxes aren’t hard - audits can be a bitch - and they are way easier when you have someone on your side walking in who knows the IRS Agents by name and says “well, we interpreted this here this way in accordance with this IRS letter.”
No answer to your main question, but what’s to stop you from just sending all your materials to your CPA? That’s what I do with mine. I hardly ever see the guy, and when I do, it’s never really for anything that can’t be done over phone/email/fax.
It shouldn’t make you much more likely, if at all, to get audited.
The criteria for getting audited is kept hidden by the IRS (for obvious reasons). But looking at general empirical evidence, the factors that will get you an audit are as follows:
Making a lot of money. People in high tax brackets get hit more by audits.
Having deductions out of line for your tax bracket.
Oddly prepped documents, coffee stains, etc. (Turbo tax doesn’t qualify for “oddly”.)
Taking advantage of certain deductions. This is usually things like home office deductions, but sometimes includes targeted deductions. A while back the IRS came down on people giving away cars to charitable deductions due to people who claimed inflated values for the cars they gave away.
There is a paper on SSRN somewhere but I am leaving work in a few minutes and didn’t find it. But the gist is that the main reasons you will get audited are things that make your return stand out. Turbotax or other software won’t contribute to that.
Tax pro here. All other things equal, the answer to your actual question is ‘No, doing them yourself in and of itself does not make you more likely to be audited than having your cpa do them’.
However, a couple of things to mention: take note of Dangerosa’s comment about audits, above. Let’s say you did get audited, either a letter from the IRS asking for more documentation or clarification, or a full-blown “come into our office we are reviewing your schedule C”… could you handle it? That is, speaking/corresponding to the IRS, providing proper back up, and so forth? If not, it will probably be worth it to get a relationship with another tax professional. (You don’t necessarily need a cpa… an experienced preparer at the largest and most well-known chain can easily do the return at a likely a lower cost; just depends).
Secondly: Yes, if you know the ins and outs, are patient with reading IRS literature, booklets, and instructions, it’s possible to do your own taxes with a fairly high degree of accuracy. For someone in your situation (ie, self employed, uncommon profession), I wouldn’t recommend it. For the simple reason that, odds are, you really don’t know what’s deductible and what’s not. (Suits for example, just going from your original post, would generally not be deductible. A tux, maybe. You may have given your cpa the receipt, but that doesn’t mean he actually took it as a deduction. Concert tickets are questionable, and are the type of expense that would be subject to audit scrutiny… yes, even for someone in your profession. Mileage and travel: there are dozens of regulations and things to be aware of, it’s not as straightforward as you might think). Now all of this stuff you could read up on yourself… but do you want to?
To answer areseNal and Una, about mailing off my documents…I fudged that part of my OP for simplicity. My CPA didn’t just move his office. He disappeared. The office was just empty one day. No forwarding address on the door, phone number “disconnected at the request of the customer,” and no letter/email/call to alert me. Big mystery. It was really weird because it wasn’t a fly-by-night operation. There were at least a half dozen CPAs working at the firm and they had a downtown office with, from what I could tell, lots of long-standing clients.
Poof. Just vanished.
drpepper, some of the deductions you mentioned are exactly why I’m loathe to get a new tax prep person. Classical musicians filing schedule C returns claim all kinds of deductions that look odd to people who haven’t dealt with that specific business before. Things that would look extremely odd on most tax returns but which are legal deductions for me (to the best of my knowledge) include: concert tickets within my field, haircuts on days of performances, performance clothing (including a suit, since my day job dress code is jeans, but I wear a suit for 90% of my singing gigs), etc. As far as I know it’s all legal, but you need someone who knows it’s legal to help. If I walked into an HR Block office next year I’d end up paying thousands more in taxes than I have in past years simply because it would look like I was trying to finance a lifestyle rather than a part time profession.
Your main point is persuasive, though. I think I need to find a new pro rather than doing the return myself, simply because I am in an odd business.
You sound pretty nervous about the whole thing so paying a pro is probably worth it to you just for the peace of mind. Maybe you should ask some of your pals who share your profession for recommendations.
That said, the Schedule C form only lists general categories. If you list $800 for “supplies,” they won’t know if it’s a suit or a flute or a year’s worth of copier paper. They will only ask for a breakdown if you get audited. If your expenses in general aren’t way out of whack with your income, you won’t get audited. TurboTax an analysis when finish and tell you if any of your write offs are likely to cause suspicion.
Well, you picked a bad year to switch to Turbo Tax! Beginning this year, Turbo Tax has gone to an a la carte pricing system. It might be better to consider a different e-file program.
Thanks for the helpful replies, everyone. I am convinced that finding a new tax pro is the right move for me. I was hoping to save some money since I don’t make a fortune as a singer and every bit I can carve out for myself helps, but the peace of mind and accuracy that come from qualified help are worth it. I don’t know many other singers in my area, but there must be someone who can give me a good recommendation.
Just to add a side note: TurboTax offers an extra service, for an extra fee: If you are audited, one of their professionals will represent you. You need to sign up and pay for this service when you first file your tax forms.
I’m not going to get into a whole big thing, because I’m not your tax preparer and you are not my client. However, I have twenty years of professional tax pro experience and I would never, ever deduct a haircut for a client, nor matter his full- or part-time profession, hobby or not. In fact, I have two clients that declare self-employment income from their work as classical musicians. I would never dream of deducting a haircut or a suit. As I said, you may believe it is a necessary expense of your profession, but that doesn’t mean it’s deductible. An experienced (and the key word here is ‘experienced’; that is, experienced at the ins and outs of a self-employed individual) tax pro will know this, regardless of how specialized your profession. There are not necessarily special rules because yours is a more esoteric profession; there are general rules and judgment calls in how and if they apply to you.
Now, all that is not to say that your tax pro has not taken this sort of deduction for you in the past. However, I am fairly certain that the IRS, should they audit your return, would disallow a deduction for a haircut. I have a couple of contacts that have worked for the IRS, however, and I will ask them next time I get the chance.
Thanks, drpepper. You are certainly the more credible person about these things between the two of us given your profession. My information about legal deductions for working classical singers is entirely from discussions with other singers dealing with similar issues and working with my own (now disappeared…hmm…) tax pro. So, it’s all either anecdotal or from experience with one CPA – not the greatest sample. Since my own deductions have always been instigated by my accountant asking if I had certain expenses related to my business, I have assumed they were above board.
We’re talking about relatively small sums of income here – under 10k for me last year – and much smaller sums of deductions, so I don’t think anything has been drastically wrong on my prior returns, but you’ve given me some good things to ask my next tax pro about when I meet him or her.
Thanks,
fig
p.s. The haircut deduction, as it was laid out for me by my former CPA, applied to things like a quick trim to make myself presentable before a last-minute audition, but not to regular haircuts. And, for what it’s worth, I’ve never deducted one because I’m far too lazy to keep receipts from haircuts.
And you know, upon re-reading, I apologize if I came off too harshly; my earlier post did sound a little abrupt and in-your-face, and I really didn’t’ intend it that wayat all; sorry about that – I’m really not picking on you personally. Now that you mention the total income was under $10K, you’re right that we’re not talking about large sums of tax liability either way; at this level it may very well be something you’re interested in, to do the return yourself. The key is to keep very good records, and know the general rules about deductibility of various categories of business expenses.
To me, the bottom line is how interested you are in digging in to some of those details. (In my experience, most people just aren’t interested, and are willing to pay someone to keep on on the various intricacies I mentioned earlier). If you have any specific questions, I’ll be more than happy to take a stab at giving you some general guidance.
My experience is also that there is quite a bit of misconception out there about what is and is deductible, based on non-straight dope type gossip that goes around during tax time. If you do find someone to do it, select (as mentioned earlier) someone experienced and stick with them year after year.
The tax preparer and the IRS have the last word, but I looked into this once when I was a part-time musician, and IRS Publication 529 says:
Note that it explicitly says that the mere fact that you don’t wear suits for things besides performances doesn’t automatically mean they are deductible.
But if you are an Elvis impersonator you are probably pretty safe deducting your suits.
Thanks for the site. The gray area is obviously the phrase “suitable for everyday wear.” Things I’ve bought this year include a tux and a tails jacket, several “interesting” outfits that I bought as pseudo costumes for semi-staged opera concerts, and one suit because my old one didn’t fit anymore. I certainly wouldn’t wear any of those things in everyday situations, or at all if it weren’t for concerts, but it sounds like it would have to be a sequined bolero jacket to remove the ambiguity.
