That’s basically the answer, don’t get greedy and be reasonable about it and you won’t be scrutinized, particularly for the amount of money you’re talking about for a small business-- you’re talking a laptop and a NAS for backups, so maybe a couple grand max.
I work in IT and often work from home, so I deduct new computer equipment that I will be using to work. At one point I even deducted part of my rent (at the time) as a home office, but that was sketchy so I stopped doing it.
What really matters is your total deductions versus income, if that number falls within the middle of the bell curve you aren’t particularly likely to be audited. Of course you can always be randomly picked so don’t go crazy with it, thinking you’re immune.
Running your own business, you have the unique opportunity to be… flexible… in paying your taxes. Not cheating by any means, just flexible. Obviously tax prep professionals won’t tell you to do that, as it involves a certain amount of risk. It’s worth tracking down another small business owner, asking them how they handle their deductions and reporting, then making your own decision.
And if you do get audited, and were really greedy/out of line, their retribution is minor. You have to pay what you owe plus a small penalty on top of that. If you don’t have the money they’ll be flexible with a payment plan. You only go to jail if you do something really egregious, like deducting your mistress’ car payments. Or if you tell them to go F themselves. Don’t do that.
Exactly, Audit is such a scary word to people but it’s really not a big deal at all. My econ professor is a former corporate tax auditor and he had some great stories about some of the jobs he did, and it proved you could get away with a lot of shit lol.
I agree with Deanpal, I’d be curious to hear some of those stories.
Also I remember hearing a quote from a Tax Professional/Econ professor at Harvard about how paying the most taxes possible is no one’s patriotic duty.
Also according to that link.
The combined amount of employer plus employee contributions can’t exceed $54,000 for the 2017 tax year ($60,000 for employees age 50 or older).
Which is $49,000 more than an IRA.
However,
In addition to the tax savings available for your contributions to a 401(k), the IRS also offers the Saver’s Credit if your Adjusted Gross Income (AGI) doesn’t exceed certain maximums. This credit offers a dollar-for-dollar reduction of your federal income tax bill. In 2016, single taxpayers whose AGI doesn’t exceed $18,500 can receive a credit up to $1,000 and married taxpayers with an AGI of $37,000 or less can receive up to $2,000. If your AGI doesn’t exceed these thresholds, you are at least 18 years of age and are not a dependent of another taxpayer, then you can decrease your tax liability with the Saver’s Credit. (This info is for 2016 so might have been raised since)
and
The contributions that you make to a 401(k) plan only reduce your income taxes, not your Social Security and Medicare taxes. These two taxes only apply to your earned income, but you do not get to claim any deductions before these taxes are assessed. For example, if your gross wages for the month are $2,500 and you contribute $400 to your 401(k) plan from it, there is withholding on the full $2,500 for Social Security and Medicare even though for federal income tax purposes, there is withholding on $2,100.