Cheating on taxes is common among self-employed people, so you have a high chance of being audited, even if you pay taxes on time and run an honest living.
The Small Business/Self-employed Division of the IRS employs the most staff.
An audit notice will require information regarding:
When and if an audit happens, you'll have the needed documentation the IRS requests.
You can lower your risk of an audit through these tips:
The IRS may audit you for three years after you file a return, so keep your records for at least three years.
The Small Business/Self-employed Division of the IRS employs the most staff.
An audit notice will require information regarding:
- If you have workers who have been classified as independent contractors when they are actually employees
- Payroll tax deposits are paid properly
- If you declared all cash transactions
- If you have large claims for business entertainment expenses
- If you have reported car expenses for travel expenses that weren't business-related
- If your lifestyle takes more than the sum of self-employment income you declared
- If you write off living expenses as business or home office expenses
- Declared all the business' sales and receipts
When and if an audit happens, you'll have the needed documentation the IRS requests.
You can lower your risk of an audit through these tips:
- Avoid math mistakes.
The IRS may want to investigate you if you have multiple math mistakes on your tax return. - Do not fail to sign your tax return because the IRS will think you have forgotten other things.
- Donations shouldn't be overestimated.
Use the market value for any donations and if you have donated a big value item, obtain a letter from an appraiser for your files. - Don't underreport your income because the IRS can examine your accounts.
- Cash transactions must not be hidden.
Cash transactions above $10,000 should be reported on IRS Form 8300 within the fifteenth day after the date of the transaction. - Don't overestimate home office deductions.
If the room your home office is in is utilized solely for that purpose, you can deduct the expense.
Keep good records on the fraction of the utilities and insurance required to keep that room functioning as a home office. - Payroll tax payments must not be failed.
The IRS considers this as unlawfully borrowing funds from the Government if these taxes are not settled. - Live within your means.
- increase in income
- a partnership
- change in lifestyle
- tax shelter investments, or a trust
- hiring relatives
- employing employees vs.
hiring independent contractors
The IRS may audit you for three years after you file a return, so keep your records for at least three years.