The 4 Common Triggers for Getting Audited, If You’re Self-Employed

The phrase “You’re being audited” may strike fear in your heart, and rightly so. An IRS audit on your self-employed tax return can be time-consuming, intimidating and frustrating. Consider four common triggers that can cause a dreaded audit.

Filing Schedule C

You file a Schedule C because it calculates your business profits and losses and details deductions. Filing a Schedule C doesn’t automatically mean you’ll be audited, obviously! However, it does flag you as a more likely candidate. If you make math errors on the Schedule C, take losses more than 3 years in a row—and especially if you falsify income and/or expenses—you will be more likely to attract unwanted attention from the IRS.

Higher Than Average Income

The Associated Press reports that in 2016 the IRS audited 5.8 percent of returns that showed income of more than $1 million but only 1.7 percent of returns that showed income of over $200,000. While you could face an audit regardless of your income, realize that higher income can trigger a deeper look into your finances.

Ongoing Business Losses

You’re in business to make money. But if your tax returns reveal losses every year, you may receive an audit notice. The IRS agent will need details that prove you’re running a legitimate business. If they find that you’re business is actually a hobby—or that you’re engaged in grey or black market activities—you could face fines and penalties.

Rounded Up Or Averaged Numbers

When the IRS reviews tax returns, the agents look for accuracy. If you calculate your income as $64,302.34, report it as $64,302 not $60,000 or $64,303. Rounded up or averaged numbers indicate sloppiness or guessing, and the IRS may question the accuracy of your other tax return calculations.

Decrease your chances of experiencing an IRS audit when you avoid these common audit triggers on your self-employment tax return. For more information about audit triggers or for assistance dealing with an IRS related crisis, contact our qualified team at 720-398-6088.