Taxes for the Self-Employed – What You Need to Know to Avoid Audits

23 Jan 2017
Self Employed

If you’ve been self-employed for any length of time, then you’ve probably heard the horror stories about fellow business owners being audited.  In fact, the IRS tends to pay close attention to sole proprietorships of all sizes and is particularly tough on businesses that deal mainly in cash.

Offering decades of industry experience, the team at Accurants is glad to provide tips to help self-employed persons avoid audits while keeping more of their money in their pockets.  Along with claiming your total income and not deducting items you don’t have to buy, follow the below tips to steer clear of everyone’s least-favorite government department.

Check Your Math

A small mistake on your tax return can spell disaster for your business’ bottom line.  To avoid costly audits, take the time to review your math and make sure you transferred all the numbers from your records to your return correctly. The last thing you want to do is alert the IRS’ attention because you failed to carry the two.

Avoid IRS Red Flags

If you want to prevent an audit, avoid those deductions that trigger the IRS to take a second look at your finances.  According to Legal Zoom, bad-debt costs, healthcare bills, meals, and travel are among the deductions most likely to raise eyebrows with the IRS.  So, if you plan to write off expenses in one or more of these categories, take time to document your purchases carefully.  Additionally, the IRS has historically been harsh on self-employed people who record a lot of driving deductions.  If your job requires you to be in the vehicle frequently, make an effort to keep a careful record of mileage, business purpose, start and end time of your trip.  It’s also a good idea to note the odometer reading at the beginning and end of the fiscal year.  Accurants has mileage log as part of their business suite where you can add your trip details and it will automatically calculate the deductible expenses by bringing in IRS Cost Per for Miles.

Just as mileage claims with details can increase the audit risks, so are excessive charitable donations.  If you have made charitable donations, it is always advisable to request a statement, from the organization that you donated to, with your name, date, amount and tax id of the organization.

You might also want to include an explanation of any deductions that are much higher than those logged last year to head off questions.  Finally, it’s a good idea to avoid filing amendments to your tax return, as IRS agents tend to look more suspiciously at these.

Keep Records

Diligently noting every purchase and sale for your business is one of the best ways to avoid an audit – and survive one should it occur.  Along with proof of big purchases, like cars, computers, and other equipment, strive to keep track of money paid to contractors and employees.  Additionally, you should take care not to record any personal expenses as business deductions. The goal is to keep these two areas of your life as separate as possible.  Finally, be sure to keep your tax documents somewhere safe, such as in a cloud-based software program, rather than anywhere they can be lost or damaged.

Seek Professional Help

Studies show that the IRS is less likely to audit businesses that use professional firms to file their returns than those who go the DIY route.  If you want to avoid an audit, consider working with a professional.

Contact Accurants Today for Tax Support

 Don’t leave your business vulnerable to a tax audit this year.  A leader in small business accounting, Accurants helps owners with a wide array of tax tasks, from tracking 1099-eligible vendors to filling out and generating Schedule C forms.  For self employed persons using Accurants, it generates a complete Schedule C form which they have take to a tax professional and reduce their overall tax preparation expenses.  Additionally, we can assist you in logging mileage and other deductions throughout the year.  To find out more about our services, call today or register to try Accurants for free online.