Case Study 1: Reconstructing Records

Remember our taxpayer, Dana, with a babysitting business? She said she made $14,000 in net profit from her business, and wants to claim the EIC. After careful interviewing, the volunteer has determined the return cannot be completed without record recontruction. The volunteer asked Dana to go home and return with some documentation to support her claims.

Based on the taxpayer's materials and additional questions, the tax preparer can determine if Dana should be claiming expenses for the business use of her home. If so, she must be referred to a professional tax preparer.

Click here for an explanation.

Volunteer Says…		Dana Says…
Nice to see you again, and I see you have some additional materials. What kind of documentation were you able to put together?		As you suggested, I completed a calendar that shows the number of children that I cared for on each date.
That sounds great. First, let's multiple the number of children that you cared for by the corresponding charged rate to confirm your income figure. Did you also bring documents to support your business expenses?		Yes, I have some grocery store receipts, canceled checks, bank statements, and credit card statements. I have highlighted the regular purchases I made for my business.
OK, then we'll calculate a reasonable estimate of expenses incurred.		Good. I'm sure my first estimate of $14,000 business income is not accurate after all. I appreciate learning what I need to do to keep track of my income and expenses.