Are You Provoking A Tax Audit?

Self-Employed

Employee-taxpayers have a W2 to verify their income independently, and it is for this reason, the IRS is unlikely to audit the returns of employed individuals unless the numbers don't add up. Most self-employed people use Schedule C to report their business income or losses, and because there is no third party to verify the accuracy of Schedule C income and deductions, the IRS views self-employed returns with some skepticism. In fact, returns accompanied by a Schedule C are three times more likely to face an audit. The IRS pays particular attention to business-expense deductions that appear to actually be personal expenses, as well as signs of unreported income. If you have proper documentation, legitimate deductions stand up in an audit, and due to this, self-employed individuals should always keep their documentation for at least three years. If your income is high and the tax situation complex, hire a tax advisor, as chances are high the IRS will come knocking one day. The auditor may choose to review the previous three years and flag you for an automatic audit next year.

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