Combining expense totals -- or not
Even though you want to keep separate records on these more specific categories, if their year-end totals are not great, you may just want to combine those into broader categories for the IRS. For example, you might toss janitorial and security into repairs and maintenance. But, if that creates a huge total for one expense category, list the discreet components separately in the big blank area to detail other expenses.
A dentist was surprised to get an audit notice. The reason for the audit that the IRS found his “repairs and maintenance” deduction was too high compared to their statistics for other dentist offices. Well, this dentist had wonderful professionally landscaped gardens outside a wall of windows so his patients could look out at gardens, birds and fountains while they were being worked on in the dental chairs. These gardens required ongoing maintenance that most dentist offices don’t incur.
Once the IRS understood why his maintenance cost was unusually high, the deduction was allowed. But you can bet the landscaping expense is pulled out separately on his future returns.
Now you can gain insight into IRS expectations for relative expenses by industry. We talk about it here:
Tax Center / The IRS & You / Idea Cafe Guide to the IRS Site
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