The overall number of tax audits continued to decrease with about one million individual returns flagged last year, which equates to less than one percent of all those filed. This number was 16 percent lower than the prior fiscal year.
Understandably, the news about tax law has been dominated in recent weeks by the nation's struggle to avoid the Fiscal Cliff. The bill that passed yesterday was hardly a comprehensive "grand bargain." But it averted the cliff by blocking immediate income tax increases for most Americans and postponing painful spending cuts.
Last week we discussed the fact that sometimes business expenses are characterized as hobby losses by the IRS. The line between business expenses and hobby losses is sometimes thin, especially in the context of new businesses.
This is the year that many Orange County residents will follow their passions and start their own businesses. The current economic climate has shown many Californians that being an employee of someone else is not as risk-free as it once was, which is why increasing amounts of Californians are going into business for themselves while still employed. Normally, businesses can deduct expenses but the deduction of business expenses may not be as straightforward for many upstart businesses.