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Tax Law (Questions About Taxes)/Don't want to get red-flagged/audited

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Hi John,

It seems to me that having a Schedule C with expenses but no income, since Iíve had income every year in the past, might beÖÖunusual. So I want to make sure I donít get red-flagged/audited.

Iím in commercial real estate; income last couple years been $100,000 range; expenses $40,000-$60,000 .

For 2015 I had no real estate income; partially because of deals that fell through and partly because I took some time off for health reasons and lived off of income from 2014 and some Social Security.

I do have social security income for 2015 of about $15,000 which I will claim.

My question is, to keep my tax return from being red-flagged, should I omit my real estate expenses on 2015 tax return since I have no real estate income or should I include my real estate expenses even though Iím showing no real estate income? In other words, I donít mind omitting my real estate expenses if it will better my chances of not getting red-flagged/audited.

Not asking any kind of filing question here; my only question is about making sure I donít get red-flagged/audited for an ďunusual return.Ē  Iím wondering if IRS will look at my return and say, ĎHey, this guyís had real estate income last few years, now suddenly he isnít showing any but heís showing expenses, whatís going on?í

I have receipts for every penny of expenses including a detailed & accurate written mileage log. OR, maybe my situation isnít so un-typical as I think it is and Iím just over-analyzing.

And if I omit my expenses/income, what do I show for Occupation on page 2 of 1040, retired?

I have no outstanding tax liability.  

Thanks so much,
Don

Answer
Don,

Thanks for your question.

Not really a big issue. If, as you state, your SS income is your only income, there is no tax benefit to deducting the expenses as you have a zero tax liability and do not really have to file.

If you are retired, you can indicate that on as your occupation, but if you plan to continue in the business, I would leave it as is, regardless of what you do.

The problem I see with not filing or with omitting the expenses is that the IRS might say, "this guy has shown a big profit in the past, he did not indicate in 2014 that the business was discontinued, he must be hiding something."

I would file, show the expenses, and move on. If you take the expenses this year, you will have a net operating loss which may be applied in future years.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

Expertise

I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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