Unfortunately for small business owners who pay their taxes diligently and responsibly, the IRS claims that the majority of people who cheat on their taxes are self-employed. As a result, the self-employed are a prime target for an IRS audit. Knowing what to expect if you are selected for an audit can help you better prepare.
Issues the IRS Will Address When Auditing the Self-Employed
What issues will the IRS be looking into if it decides to audit you as a result of your being self-employed? It will likely investigate whether or not you did any of the following:
- Reported all of your business sales and receipts
- Lived in a manner consistent with the amount of self-employed income you reported
- Reported all cash transactions
- Deducted any personal living expenses as business or home office expenses
- Wrote off automobile expenses for travel that was not business related
- Claimed excessive business entertainment expenses
- Made the proper payroll tax deposits
- Wrongly classified any of your workers as independent contractors instead of employees
The good news for taxpayers is that if you claim all of your income and do not take deductions for items that you did not pay for, you are off to a good start when it comes to surviving an audit. Even if the IRS does find unpaid tax debt after its investigation, solutions may be available to you. For example, you may be able to obtain an offer in compromise, request “uncollectible” status, or even file for bankruptcy if necessary. It is important, however, to speak with an attorney before dealing with the IRS. For more information about how we can help, we encourage you to check out our client testimonials today.