Thursday, October 27, 2016

Reducing Your Risk of Being Audited When You’re Self-Employed

For more than 10 years, Dave Chupp has been breeding and raising a wide range of puppies as the owner and manager of his own company in Indiana. Dave Chupp also has spent some time doing tax preparation work.

When you’re self-employed, you are significantly more likely to experience an IRS audit. The IRS knows what most people in your field make during the year. If you happen to make a lot more than the rest of individuals in your field, the IRS will start paying more attention to your returns. However, this does not mean you should actively try to make less. Instead, just be honest about the amount you make and keep detailed records of your finances in case there is ever a problem. Further, make sure your 1099 matches the W-2 forms they receive from clients and employers. Any discrepancies make you more likely to be audited.

Beyond income reports, be careful about what you deduct. For instance, if you deduct the cost of a home office, make sure that space is used only for work. If it is shared with anything else, you cannot deduct it. Similarly, large deductions can make your taxes seem suspicious to the IRS, especially if you have a relatively small income. If you make a deduction, make sure you have documentation and receipts to back up the expense. It may also be wise to avoid unusual deductions, such as non-work-related travel, strange entertainment expenses, and expensive meals.

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