How Likely Is a Self-Employed Tax Audit

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How to Know If Your Self-Employed Tax Filing Will Trigger an IRS Audit

It’s no secret that self-employed professionals are more likely to be at the mercy of the IRS. Self-employed tax filings are, simply put, more complicated — and therefore, more prone to error. Still, the risk of being audited varies dramatically from one self-employed individual to the next.

To help you determine whether you might be vulnerable to auditing, we’ve highlighted a few of the main risk factors worth keeping an eye on:

You Haven’t Reported All Income

If your self-employment takes the form of a modest side hustle, it can be tempting to keep this extra source of income quiet. Similarly, it’s easy to leave out income from minor clients or contracts even if the majority of your earnings stem from self-employment. In either situation, however, fudging the numbers can place you at considerable risk.

Your Self-Employed Income Exceeds Six Figures

Unfortunately, self-employment success comes with a significant caveat: it makes audits even more likely. The IRS has faced extensive criticism in the past for auditing low-income self-employed professionals, so the agency has changed its tune. Now, specialized IRS agents place high-income self-employed individuals under extra scrutiny. Enforcement efforts may become even more aggressive in the future.

You’ve Made Extensive Use of Deductions

Tax deductions can be one of the biggest perks of working for yourself, but these financial rewards carry huge risks. Chief among them? The potential to trigger an audit.

When striving to limit your risk, consider not only the dollar amount of the deductions you intend to take but also, the extent to which they involve meals and entertainment. Large Schedule C write-offs are among the most concerning — particularly when strong documentation is unavailable.

Whether you’re worried about a potential audit or have already been targeted by the IRS, a proactive approach is essential. The Highland Tax Group can help — get in touch today to learn how.