Posted by Marcel Sim under Operations,
March 21, 2008

This article is contributed by Heather Johnson, a freelance business, finance and economics writer.
With a tax deadline looming over their heads, many self-employed Americans are scrambling to get their ducks in a row. After all, the last thing anyone wants is to be audited. Even muttering the word strikes fear into the hearts of most people.
Why should entrepreneurs be especially concerned about audits? It is because the government is more likely to examine the self-employed a little closer. This is because many people accept cash payments, avoiding those pesky W-2 forms. As you can imagine, not everyone complies with the honor system when it comes to claiming his or her income.
So, now you know that you're more likely to be audited than someone else who isn't self-employed. Mind you, that doesn't mean the IRS is waiting in the bushes and ready to pounce. Chances are, you will never be audited and if you are, it really isn't the end of the world.
That being said, there are a few precautions you can take that will work in your favor. Below are eight tips for making you the least likely candidate for an IRS audit:
1. Be Honest – Don't purposely fudge on your taxes, even if you know someone who gets away with it or if you've done it in the past. It's wrong, it's illegal and it's really not worth it if you get caught.
2. Save Every Document – This is the most important step in good accounting and you've heard it a million times. Should the IRS ever come knocking on your door, this will be your saving grace.
3. Hire A Professional Accountant – Just as many people don't save receipts like they should, not many people heed this advice. However, it really is best to hire an accountant to handle your taxes when you are self-employed. Your paperwork is more complicated than those who work for a company.
4. Avoid Math Errors – A miscalculation that is spotted by the IRS will alert them to your records. The goal here is to keep a low profile, so any discrepancies make you stick out like a sore thumb. Mind you, a miscalculation may just result in a friendly notice from the IRS and not a full-blown audit, so don't panic.
5. Don't Forget Your Signature – What could be more conspicuous than you failing to sign your return form? Even a minor mistake like that could make the government suspicious.
6. Don't Drastically Change Your Lifestyle – If you were to move from a palatial mansion to a single-wide trailer, this might ring some alarms when you file your taxes.
7. Don't Be Successful – Heh, this may be the best rule to break. Hopefully you are successful and will become even more so, but a drastic change in income will certainly make the IRS a bit curious about your situation.
8. Be Careful With Your Deductions – Don't go crazy with deductions, particularly if you aren't sure how they work. Also, forget about deducting anything you don't have a receipt for. As far as the IRS is concerned, you didn't buy it for that reason if you don't have a receipt.
Here's some encouraging news: as of the year 2003, only 1% of Americans filing tax returns were audited. So, that leaves a 99% chance you will never have to face those scary taxmen. Also, don't assume you're going to the poor house or the big house if they do choose to audit you. As long as you are as honest and as thorough as possible, the IRS won't send you up the river.
Heather Johnson is a freelance business, finance and economics writer, as well as a regular contributor at Business Credit Cards, a site for best business credit cards and best business credit card offers. Heather welcomes comments and freelancing job inquiries at her email address heatherjohnson2323@gmail.com.
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