RICS - Due Diligence - Schedule C Returns - YouTube video text script

Oh, hey, good to see you come on through.

Miss Porter. Welcome, welcome, welcome.

Thank you.

Thank you for all the documentation that you have provided to verify your three dependents and Head of Household filing status.

Let’s review your income, next.

Sure thing.

I work as a hair stylist. Here are the records I kept throughout the year.

I’d like to start with Form 11652,

that is Questionnaire and Supporting Documentation

Form 1040, Schedule C Profit or Loss from Business.

The IRS doesn’t require me to send this form in with your return, but it helps document the legitimacy of your business, and it keeps a record of your income and expenses in case the IRS decides to audit your return.

I’ll fill in your standard business information that you’ve already provided and have you review at the end.

Do you have a website, and do you pay for any advertisement for your business?

Yes. I have a website with my services, pricing and appointment scheduler.

My website is StylzebyTiff.com. I also have a few social media pages to advertise my business.

I pay for my website, but I don’t pay for any other advertisement fees.

Ok. You already told me that you didn’t file state or local sales tax returns this year, and you didn’t receive any income that was reported on any type of 1099. Is that right?

Yes, that is correct.

From the documents you provided, you have a total income of $48,600 for the tax year.

Can you explain how you keep records of your business income?

Yes. I have software that keeps track of all my clients’ appointments.

Most of my clients pay by credit card or transfer money through some type of cash application on their phone. I have electronic records of these payments.

OK great.

And how do you keep track of the clients who pay by cash?

I go into my software, I input the amount paid with cash, and it sends the clients a receipt to their texts or e-mail.

Perfect.

Let's talk about your expenses.

Can you tell me how you keep track of all expenses?

I have electronic transfers for my monthly expenses, and I keep track of online purchases through email confirmations and bank statements.

I also have some cash payments with invoices.

Ok, thank you for that information.

I’ve reviewed your expenses, and I have additional questions.

You spent $6,700 on expenses to attend two hair conventions last year.

How many days were those conventions?

The conventions were six days total.

Your hotel and airline receipts show you traveled for 14 days, but only six of those days can be justified for business expenses.

All expenses associated with your travel, food, and convention fees will be adjusted from $6,700 to $2,253 since those are the days associated with the conventions.

The other expenses were for personal use.

The next issue is with your furniture expenses.

You are reporting total expenses of $3,850 on furniture,

I only see itemized receipts that total $1,850.

Where are your receipts for the remaining $2,000?

Those receipts got lost, but trust me, I spent $2,000 on shampoo bowls and a television for my clients to watch.

Unfortunately, I can only include verifiable expenses, so I’ll have to adjust those expenses from $3,850 to $1,850.

With the adjustments to your travel and furniture expenses, your original net income of $23,061 will increase to $29,508. 

I'll make copies of all your expenses, income and the business permit that you provided.

I'll attach them to this form, keep as part of my records and afterwards you can review to make sure everything is accurate.

Thank you, Mr. Buchanan.