Self-Employed Woes

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:


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


As you can tell, it is vital to keep good records. 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.


The IRS might audit you if:


increase in income
a partnership
change in lifestyle
tax shelter investments, or a trust
hiring relatives
employing employees vs. hiring independent contractors


You will be able to convince the IRS that you operate an honest living if you settle your taxes promptly and keep accurate records. The IRS may audit you for three years after you file a return, so keep your records for at least three years.

Darrin T. Mish is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He teaches attorneys, CPAs and Enrolled Agents in the finer aspects of IRS representation all around the United States. He can be reached at his website at http://www.getIRShelp.com