If you're an independent contractor or business owner in Oklahoma, one of the things the IRS will look for when examining your annual tax return is the ratio of your income (or revenue) to your expenses. The government understands it takes a significant capital outlay to run a small business: rent, equipment and materials, employee compensation, and travel expenses, to name a few. But, if you claim that your $30,000 in annual revenue was almost completely offset by $28,000 in expenses, you are begging for a painful audit.

Why? Well, the people who work at the IRS aren't fools; they know that most business owners and contractors in Oklahoma depend on their income to make a living (even if their living expenses are partially borne by a spouse). You will have a hard time making the case that you were able to live for an entire year on a $2,000 net profit. More likely, the IRS revenue officer will conclude that you vastly inflated (or even made up) most of your expenses, to get out of paying your fair share of taxes.

What is the worst the IRS can do to you, if its suspicions are borne out? A whole lot: the government not only will send you a back tax bill, complete with penalties and interest, but it also may slap a lien on your house (or business) and even put a hold on your bank accounts, pending your payment of your back tax debt.

Questions? Get help from the Oklahoma tax experts at Travis W. Watkins, PC (800-721-7054) today!

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