Self-Employed: How To Survive An Audit

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Self-Employed: How To Survive An Audit

Mar 25, 2011

The IRS expects 145 million tax returns to be filed for the 2010 tax year and, of those, one in six will be self-employed Schedule C filers. A small percentage of those self-employed businesses will be subject to an audit each year.

The NASE knows that many self-employed business owners meet their tax obligations fully, so the audit process need not be feared. The IRS can review tax returns for up to three years, so now is the time to make sure all of the necessary paperwork and documentation is stored with the 2010 tax return.  

“As long as taxpayers dot their I’s and cross their T’s when preparing their return, then there is no reason to worry about an audit,” says NASE National Tax Advisor Keith Hall. “It’s possible that you might even get a refund.”

The audit selection process can be a complicated one. Here are a few tips to keep in mind: 

  • Math Errors – This is the most common reason for an audit. Check and re-check the return to make sure all numbers, dates and Social Security numbers are included. Using tax preparation software can help eliminate these errors.
  • Prior Audits – Prior audits and matching tax indicators - e.g. you have the same small business and same typical deductions - might increase the likelihood of being audited again. This is particularly true if last year’s audit included an additional tax assessment.
  • Statistical Sampling – This accounts for most of the returns that are selected for an audit. The more complicated the tax return, the higher the chance of audit selection.

The NASE offers numerous tax tools and other tips to help you get through current and future tax seasons. For help organizing your taxes, visit the NASE's Tax Resource Center. NASE members can ask our Tax Experts their questions.

The opinions expressed in our published works are those of the author(s) and do not necessarily reflect the opinions of the National Association for the Self-Employed or its members.

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