I started building homes on the side this year and this will be my first year reporting taxes on the sales. My question is, how do you report/ prove the expenses vs sales cost in your tax return? I have kept every receipt and invoice for all of my builds and track them individually in an excel sheet with cost codes so I know the exact amount down to the nickel. Do I just report this amount and will the IRS come check theses expenses if I add soft costs to the build cost? If it matters, I have sold 4 homes in 2019 so I guess I’d be reporting a single sum totaling the 4 sales.
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https://fitsmallbusiness.com/taxes-on-flipping-houses/
What you are looking at is ordinary income. If you have made money on these flips, you are likely already in a little bit of troble if you havent made estimated tax payments. At a minimum you will owe 25% on any profits due to the 15% Social Security rate on Self employement plus the 10% minimum tax rate.
You might just want to start putting it all into quick books and that will help you with taxes and estimated payments. You still have time to drop an estimated payment on the IRS and likely avoid an underpayment penalty so I would get on it quick.
Bite the bullet and get yourself a GOOD agressive CPA. It's worth the money. Almost everything can be deducted and audits are rare. I've been audited twice in 50 years and everything was found to be in order. A good accounting firm will not only represent you at an audit, they will ask you not to be there. For example, I would write off all of the costs for my dogs as security, nothing was found amiss with this in an audit. I would never have thought to do that on my own. My joint return usually includes 2 businesses, rent and royaltys from multiple sources, farm income and expenses, probably 30 pages in all. My accountant's bill is usually around $1200. Well worth it.
Thank you Mike! Do you write down your expenses to the penny? I'm wondering what I'm able to get away with reporting for profit without committing blatant tax fraud.
I don't write down anything. Every purchase is made on a company credit card. I keep receipts but have never needed one. At the end of the year I have a record of every vendor and transaction. I use checks for subs and payroll. Auto expenses are done by mileage. The credit card gives me alot of air miles.
Never wait for the IRS to come knocking. They will find something to cover their time and then some. That's their job. Follow Mike's advice about a GOOD knowledgable CPA and don't go to IRS meetings, never let them into your house, let the professionals do that. Keep as much info as you are willing to deduct and verify. If you want it to the penny do so, just is it worth your time to chase every penny...once you're looking for things that are smaller than what you could earn for the same time, stop.