Why Can’t I Just Deduct Everything? Because You’ll End Up Like These People

Hakeem Abubakr and Saharmila Kassim v. Commissioner gives us an interesting look at how not to report deductions on a tax return. Mr. Abubakr was a travel agent. Ms. Kassim was a software engineer. They reported his business activity on Schedule C, reporting only some $18,000 in gross receipts and claiming over $94,000 of deductions. They used the resulting $76,000 loss to reduce their other income of almost $14,000 in Social Security payments and Ms. Kassim’s $150,000 wage income.

Of the claimed expenses, the IRS actually allowed over $47,000. To prove up his entitlement to more, Mr. Abubakr dumped over 226 documents on the Court, including spreadsheets, bank records, receipts, and more. Altogether they showed just over $66,000 of expense, the documents were a confusing mess, containing multiple duplications of amounts, put into different forms. After sorting through all of it, Judge Gerber held “the documentation he presented accounted for slightly more than $37,000.” That was considerably less than the $47,000 allowed by the IRS.

One of the categories of expenses the IRS totally disallowed was a category that Mr. Abubakr titled “other expenses.” It totaled over $35,000. He testified that these were amounts that he paid upfront on behalf of his clients for their travel. He also testified that the clients paid him back for those expenditures. This explanation logically fits with the pattern of a for-profit travel business. What seems lacking in substance are alleged expenditures made on behalf of clients which were not paid back. That is a large understatement because Mr. Abubakr reported only $18,000 in gross receipts.

Don’t be like Mr. Abubakr and Ms. Kassim, let a professional do your taxes. The professionals at The Center for Financial, Legal, and Tax Planning, Inc. are more than knowledgeable with regards to tax decisions that can benefit both this tax year in addition to 2021. Please contact us at (618) 997-3436 with any questions