So You Wish To Be Self-employed?

Self-employed individuals are more prone to cheating on taxes, so even if you operate an honest living and settle taxes on time, you have a high chance of being audited. The Small Business/Self-employed Division of the IRS has the most people.

An audit notice will require information about:

• Declared all business' sales and receipts
• Personal living expenses declared as home office or business expenses
• If your lifestyle exceeds the sum of self-employment income you reported
• If you have reported car expenses for travel expenses that were not business-related
• Large claims on business entertainment expenses
• If you declared all cash transactions
• If you paid proper payroll tax deposits
• If you have employees classified as independent contractors

Keep records, so you're ready if the IRS requires necessary documentation.

Lower the risk of audit by:

• Avoid math errors. The IRS may investigate you if you have numerous math errors on your tax return.
• Don't fail to sign your tax return because the IRS will believe you have forgotten other things.
• Don't overestimate your donations. When donating big value items, use the fair market value and obtain a letter from an appraiser for your files.
• The IRS can examine your accounts, so do not underreport your income.
• Cash transactions over $10,000 have to be declared within fifteen days of the transaction on IRS Form 8300.
• Do not overestimate your home office deductions. Deduct the expense if your home office is utilized only for that intent. Take note of the insurance and utilities required to keep it that way.
• Payroll tax payments must not be neglected. The IRS considers you as illegally borrowing funds from the Government if the taxes aren't settled.
• Do not have income discrepancies. This means your income must fit your lifestyle.

Other factors for the IRS to audit you:

• increase in income
• a partnership
• lifestyle change
• tax shelter investments, or a trust
• employing relatives
• employing employees vs. independent contractors

If you keep good records and settle your taxes on time, you will convince the IRS that you run an honest living if you're audited. Make sure you hold on to your records for at least three years because the IRS may audit you for three years after you file a return.

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