How To Address The IRS If You Are Self-employed

You are a candidate for an IRS audit if you are self-employed. This is because self-employed people are prone to cheating on taxes. Filing fraudulent tax returns are simple with the lack of W-2s and settlements in cash. The IRS’ Small Business/Self-employed division employs the most people. You have a chance of being audited, even if you operate an honest business and pay your taxes promptly. Without knowing it, you have IRS problems.

The IRS will want information regarding the following if you are being audited:

• Workers classified not as employees but independence contractors
• Payroll tax deposits are paid properly
• All cash transactions were declared
• If you have large claims for business entertainment expenses
• Non-business related travel and car expenses
• If your lifestyle takes more than the sum of self-employment income you reported
• If you write off personal living expenses as business or home office expenses
• If your business’s sales and receipts were declared

Keeping records is essential. When and if an audit occurs, you will have all the necessary documentation the IRS requests.

Lower the risk of audit through:

• Don’t make math errors because these will prompt the IRS to investigate you.
• Don’t forget to sign your tax return because the IRS will believe you’ve forgotten other things.
• Use the fair market values for donations, vouched for by an appraiser.
• The IRS can investigate your accounts, so do not underreport your income.
• Report cash transactions more than $10,000 on IRS Form 8300 within fifteen days of the transaction.
• Don’t overestimate the deductions for home office by keeping good records of the utilities and insurance you utilized for the home office.
• Make your payroll tax payments, or it’ll be considered unlawfully borrowed money from the U.S. government.
• Discrepancies on your income has to be avoided. This means your lifestyle must match your income.

An increase in your income, lifestyle improvement, partnership, tax shelter investments, a trust, hiring employees vs. employing independent contractors, and employing family members are more factors that may give the IRS cause to audit your business.

If you keep good records and pay your taxes promptly, you will convince the IRS that you operate an honest living if you’re audited. The IRS can audit you for 3 years after you file a return, so hold on to your records for at least 3 years.

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