Getting your 1099 taxes done is one hurdle. You still have to worry about getting audited. Once April 15th has passed, the IRS will begin the process of identifying individuals to be audited. No one wants to be a part of that list. So here are some power tips to prevent a tax audit.
As you do your taxes this season, it’s important to ask yourself the right questions to lower the chances of the IRS auditing you. Keep in mind this list to help you avoid an audit on your 1099 taxes:
Will you get audited?
There are two ways you may get audited. First, the IRS may choose you randomly. While the chances are low, it is possible. Anyone can be audited. Secondly, you have a higher chance of being audited if you have suspicious tax activity.
Does everything match up on your documents and taxes?
One of the most common mistakes people make is incorrectly inputting their income on their tax return. You should make sure that your income matches what is listed on your W-2s and 1099s. The IRS is sent a copy of these documents as well. If your numbers don’t match up, they will know and this will make you more likely to get audited.
Did you document your expenses?
Often times for independent contractors, your expenses can lead to you getting audited. It’s one area that many people tend to make mistakes. When you are completing your Schedule C, make sure you can document the expenses you list in the event you are asked to. Also, as you decide what business expenses to write-off, keep in mind that they should be reasonable. The IRS requires that business expenses be ‘ordinary and necessary’. Otherwise, you should exclude them.
Are you living within your means?
One red flag that could trigger an audit is if you are spending more than you make or if you aren’t living within your means. For example, if you live in a wealthy area but have a low income, that may raise suspicions that all your income isn’t being reported. Make sure you can back everything up.
Do you have business partners?
If your business partners get audited, you essentially will be too. You may not be formally audited but since your income is tied to theirs, the IRS may look into your taxes as well or ask you for certain documents. Speak to your business partners so that you are all on the same page and know your business’ tax rules.
For more information about IRS audits, visit their website.