“ What are my options: can i add the 10k as amended debt in my pending Chapter 7 case?”
Well, you can ask your bankruptcy attorney, however the answer is probably no. Income taxes that have not been assessed yet as of the date of your bankruptcy filing are generally not eligible for discharge.
“is there any way to use bank statement showing the expenses vs receipt?”
If your bank statement shows expenses for the business (like electronic payments, for example), then that can work in place of a receipt. You can also ask the bank for copies of canceled checks (though it may charge a copying fee). Your proof does not necessarily have to be receipt, but it does have to have sufficient information on it to show how much you paid, to whom you paid it, and generally what it was for. So, there can be a lot of ways you might prove your expenses. If you used a credit card, the credit card statements might be useful for proving expenses, for example. Indeed, some cards offer an annual report of your charges broken down by category. If you use a business credit card, that can be very helpful in proving expenses. If you know the companies you dealt with, maybe they have copies of the receipts they gave you. Try to think of any way that you may have received documentation for the expenses. The bottom line with the IRS, though, is generally this: if it isn’t documented, it didn’t happen as far as they are concerned. That is why record keeping is so important when you are in business.
“2 - Can i amend my return during the audit, since i missed several expenses ?”
Yes, absolutely. Give the amended return and the proof of your changes to the auditor. This is your chance to get those things in and help reduce any assessment.
“3 - How i deduct my start up cost related to software development to be sold to customer?”
Start-up costs in taxes means the costs you incur before you open for business. So, if these were costs that you incurred before starting with your first customer, then they may be start-up costs. Is that what you have here? Or were you in business already but just incurred costs for a new customer? And what kind of costs are involved? Those are all important considerations to determining how you get to deduct the costs.
“4 - I have Corporate (S) status, are taxes due on my annual 1040 return or i have to file monthly filing..since i am making income on my consulting business?”
How are you filing a Schedule C if your business is set up as a S-corporation? When you have a S-corporation, it files its own tax return on a Form 1120-S. That return is due 3/15. S-corporations do not pay tax, though. Instead, the income from the S-corporation gets reported on the owner’s tax return. As part of the 1120-S eturn, the corporation prepares Schedules K-1 for each owner of the S-corporation. One copy of the K-1 goes with the 1120-S return, and another gets sent to the shareholder. The information on the K-1 tells the shareholder how to report his share of the S-corporation’s earnings. Most of it ends up on Schedule E of the Form 1040., but there may be some items that go on other forms.
If you take any money out of the S-corporation, it is treated as salary to you until you have paid out a reasonable salary. That is because you are an employee of the S-corporation. When you take out salary, the corporation must withhold income, Social Security, & Medicare taxes for you just like it would for any employee. It then files and pays employment taxes. The employment tax return is Form 941, which is filed 4 times a year. There is also a federal unemployment tax return, the Form 940. That is filed once a year on Jan. 31. If you have not been doing this, you may owe some significant penalties and interest.
You may also be required to pay state taxes, and perhaps workman’s compensation insurance and state unemployment taxes, too.
If you are not familiar with any of this, then you really need to see a tax attorney or other tax professional who is familiar with S-corporation issues.
Is there some reason you chose a S-corporation rather than a LLC? For most small businesses, the LLC is generally the better choice, particularly if it only has one owner. You may want to talk with a business attorney and a tax professional about whether the S-corporation is the best way for you to conduct the business, if you didn’t do that when you set it up.
“5 - How can i deduct cash expenses when i lost my receipt or never received one ‘like car repair and son’?”
Try to avoid cash purchases for anything significant unless you get a receipt. Without some kind of documentation of the expense, you may not get credit for it in an audit. It may help to at least keep a daily log of expenses from petty cash for the small purchases. An accountant can help you set up a bookkeeping system that can make a lot of this much easier at tax time.
It sounds to me like you went into business without a good understanding of what the tax rules are, and as a result, it looks like it is going to cost you. For Schedule C businesses, IRS Publication 334 provides a very good comprehensive explanation of your federal tax responsibilities. Publication 535 discusses business expenses, which will apply to both the Schedule C (sole proprietorship) and S-corporation. Publication 583 discusses recordkeeping for businesses. And Publication 542 gives you information about taxes for corporations. I think it would be helpful for you to read these publications. The IRS sometimes holds small business workshops. Your auditor might be able to tell you when the next one in your area would be held.
You can get the publications at most IRS offices (maybe from your auditor), have them mailed to you by calling the IRS toll free at 800-829-3676 (800-TAX-FORM), or download them from the IRS at:
You may want to consider consulting a tax professional for help with the audit and for assistance in getting you properly set-up so that you are doing things correctly in the future. Trust me, it is money well spent—it can save you a huge amount of taxes over the life of your business.