Are you self-employed? You’re not alone. The Bureau of Labor Statistics claims that in 2009, 15.3 million individuals in the United States were self-employed and many feel that number has increased. If you’re self-employed, the odds of you getting audited are higher than the 1% national average. The reason for this is quite simple. The IRS believes that as a self-employed tax payer, you’re far more likely to cheat on your tax return than if you were traditionally employed.
How to Avoid Getting Audited
The good news is that there are some things you can do to remain self-employed and also decrease the odds of the IRS wanting to go over your books. The first thing you should do is pay yourself an income and make sure you claim it as such. This gives the IRS the impression you’re employed. The second thing you need to do is to resist the temptation of claiming items that you didn’t actually pay for. If the item is valuable enough, or you frequently claim items you didn’t pay for and get audited, it will look like you’re engaged in a form of tax evasion. The very last thing you should even think about doing is depositing noticeable amounts of money into your bank accounts and then failing to record them when you filed your tax return.
If you live in a lifestyle that seems at odds to the amount of income you tell the IRS you earn, a red flag will be raised and the organization will launch an investigation to see if you’ve committed tax evasion. Other red flags include:
- A high number of cash transactions for your industry
- Multiple business expenses listed as entertainment
- Auto expenses that were for more than just work related issues
- Business trips that look more like vacations
What You Need to Report
- All of your business expenses (keep all the receipts in your files)
- All of your sales (keep accurate records of all transactions, including the cash transactions)
One of the biggest problems that self-employed tax payers run into is cash transactions. Tax evasion attorneys quickly tell you that any cash transactions that equal more than $10,000 must be reported. To better understand cash transactions and your taxes, review Report of Cash Payments Over $10,000 Received in a Trade or Business
Don’t assume that just because you don’t make $10,000 in a single transaction that you don’t have to report your cash earnings. You still do, however, if you own a business that has a great deal of cash transactions you are even more likely to be audited than if you only record one or two large cash transactions a year.
If you’re self-employed and receive notification that you’re being audited, you need to contact a tax evasion attorney, even if you know that you haven’t done anything wrong. Auditors occasionally make a mistake, and your tax evasion attorney will make sure you don’t have to pay for their error. The attorney will also make sure that the audit goes smoothly and that you’re not unduly hassled.Read More