If You’re Self-Employed, Prepare to Be Audited

If You’re Self-Employed, Prepare to Be Audited

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-LandlordTaxAuditemployed 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

4Don’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.

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What To Do If You Are Accused of Tax Evasion

What To Do If You Are Accused of Tax Evasion

Something about your recent tax return raised a red flag with the IRS and now they’re investigating you for tax fraud. This is a terrifying experience and not one you should not try to get through without a really good, highly experienced tax evasion attorney standing by your side. If you find yourself in the middle of a tax evasion investigation, this is what you should expect.

You’ll Be Notified of the Investigation

You should receive a notice from the IRS.  Read this notice very carefully, paying attention to the wording as well as any dates mentioned. The words Code of Practice refers to the process the IRS uses to investigate the unique details of your case. At this point you need to do two things; schedule a meeting with your tax evasion attorney, and pick up a copy of the Code of Practice. Both the tax lawyer and the Code of Practice will not only help you better understand your 608869-shutterstock_-1380079865-551-640x480exact obligations to the IRS during the investigation, but also the different rights you have at this time.

The Investigation Process

Sadly, there isn’t a set number of days that the IRS has to investigate your case and determine whether or not you’re guilty of tax fraud. If the matter is straight forward and all the IRS really needs to do is check your compliance, the odds are good that the matter will be resolved within a month. On the other hand, if the IRS launches a full scale investigation, the situation can take up to 6 months to complete.

What Happens If You are Guilty?478812-taxDESIGNFAIZANDAWOOD-1355305717-859-640x480

Each case is quite different, so it’s impossible to say with absolute conviction that you won’t face prison time, but it’s fair to say that the odds are pretty slim of this happening. The reality is that very few people are ever prosecuted by the IRS, as a rule there are only about 1,000 cases of tax fraud that even go to court. That being said, it’s always a good idea to have a tax evasion attorney on hand, just in case the IRS does decide to turn the civil investigation into a court case.

Tax evasion is a massive problem. Between the years of 2001 and 2010, it’s estimated that the federal government lost $3.09 trillion dollars as a direct result of taxpayers using evasive measures to get out of paying taxes. It’s one of the reasons that the national deficit is so high. The IRS is cracking down.

It’s important to understand that there are two different types of tax evasion, willful evasion and unwillful evasion. If you committed unwillful tax evasion it simply means that you made a costly, but forgivable accident on your tax return. You’ll have to pay any back taxes you owe as a result of the error, but it’s unlikely there will be any other consequences. Willful tax evasion refers to a method used by a person, such as J. Bryan Williams and deliberately took measures to hide money from the U.S. government so you wouldn’t have to pay taxes.


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