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Momosgirl
Returning Member

Audit prevention

I've heard that freelancers get audited more often than employees.
What are your top tips to keep the likelihood of that down (e.g. making sure the expenses in each category fall into a normal range and how to check that, etc.)? Thank you!

1 Best answer

Accepted Solutions
PoojaT27
Employee Tax Expert

Audit prevention

Freelancers enjoy the freedom of reporting income and expenses while employees do not have that freedom. As IRS has determined, freelancers are the ones that try to underreport the income or over state expenses to avoid paying taxes. Here are some things a freelancer can do to reduce the chances of getting an audit:

  • One of the most common red flags for auditors – erroneous data entry – is also one of the most preventable. It seems simple enough to follow the advice to “double-check your return,” but surprisingly, people are often too careless regarding their taxes.
  • Make sure only to write off the portion of your home used exclusively for work.  If the space is used for anything other than work at any time, it can't be deducted as a home office.
  • Make sure you report all 1099s correctly on the return since they are reported to the IRS.
  • To reduce your chances of being targeted, take care to report only those deductions you can back up with receipts or other relevant documentation. Some of the biggest red flags for the IRS include expensive meals, non-work-related travel, unusual entertainment, and non-doctor-approved medical expenses.
  • For any donations, ask your donation recipient for a written statement that includes your name and the donation amount.
  • To protect yourself and your business, keep detailed records of vehicle usage related to your company.

If you use Turbo Tax to file your taxes, you automatically receive access to Audit Support Center.

Top Five Ways to Avoid a Tax Audit

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

4 Replies
PoojaT27
Employee Tax Expert

Audit prevention

Freelancers enjoy the freedom of reporting income and expenses while employees do not have that freedom. As IRS has determined, freelancers are the ones that try to underreport the income or over state expenses to avoid paying taxes. Here are some things a freelancer can do to reduce the chances of getting an audit:

  • One of the most common red flags for auditors – erroneous data entry – is also one of the most preventable. It seems simple enough to follow the advice to “double-check your return,” but surprisingly, people are often too careless regarding their taxes.
  • Make sure only to write off the portion of your home used exclusively for work.  If the space is used for anything other than work at any time, it can't be deducted as a home office.
  • Make sure you report all 1099s correctly on the return since they are reported to the IRS.
  • To reduce your chances of being targeted, take care to report only those deductions you can back up with receipts or other relevant documentation. Some of the biggest red flags for the IRS include expensive meals, non-work-related travel, unusual entertainment, and non-doctor-approved medical expenses.
  • For any donations, ask your donation recipient for a written statement that includes your name and the donation amount.
  • To protect yourself and your business, keep detailed records of vehicle usage related to your company.

If you use Turbo Tax to file your taxes, you automatically receive access to Audit Support Center.

Top Five Ways to Avoid a Tax Audit

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

KochuK
Employee Tax Expert

Audit prevention

Hi momosgirl,

 

I understand your concerns since there are more self reporting elements in a Schedule C, Profit or Loss From Business.  Recommend the following:

(1) Top Five Ways to Avoid a Tax Audit

https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/top-five-ways-to-avoid-a-tax-audit/...

(2) Report all business income and business expenses in its entirety with supporting documents in case of IRS inquiry.

(3) Review Schedule C expenses categories for proper classification, i.e. do not have a very large Misc. expenses without description.

https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

(4) TurboTax Audit Meter at end of Schedule C is helpful.

(5) 

When the IRS Classifies Your Business as a Hobby

https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a...

If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby. Running a hobby as a business could very possibly trigger an IRS audit.

 

Hope the above helps. Thank you.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Momosgirl
Returning Member

Audit prevention

VERY, very helpful, and also reassuring. Thank you so much.

PoojaT27
Employee Tax Expert

Audit prevention

You are welcome! Thank you for participating in "Ask the Expert" event.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
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