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Tax Audit Risks for the Self-Employed

Kiplinger Logo By The Kiplinger Washington Editors of Kiplinger | Slide 1 of 9: <p>Being in business for yourself can be exciting, lucrative – and a great way to draw the attention of the Internal Revenue Service’s audit division. Short on personnel and funding, the IRS audited only 0.70% of all individual returns in 2016. But if you file a Schedule C to report profit or loss from a business, your odds of drawing additional IRS scrutiny go up.</p><p>Schedule C is a treasure trove of tax deductions for self-employed people. <strong>And it's also a gold mine for IRS agents, who know from experience that self-employed people sometimes claim excessive deductions and don’t report all of their income.</strong> The IRS looks at both higher-grossing sole proprietorships and smaller ones. Special scrutiny is given to cash-intensive businesses (taxis, car washes, bars, hair salons, restaurants and the like) as well as to small-business owners whose Schedule C’s report a substantial net loss.</p><p><strong>Take a look at these eight filing scenarios that could attract unwanted IRS attention.</strong></p>CALCULATOR: <a href="http://portal.kiplinger.com/tool/taxes/T055-S001-calculator-what-s-your-risk-of-a-tax-audit/index.php">What's Your Risk of a Tax Audit?</a>

Self-Employed? Avoid These Audit Red Flags on Your Tax Return

Being in business for yourself can be exciting, lucrative – and a great way to draw the attention of the Internal Revenue Service’s audit division. Short on personnel and funding, the IRS audited only 0.70% of all individual returns in 2016. But if you file a Schedule C to report profit or loss from a business, your odds of drawing additional IRS scrutiny go up.

Schedule C is a treasure trove of tax deductions for self-employed people. And it's also a gold mine for IRS agents, who know from experience that self-employed people sometimes claim excessive deductions and don’t report all of their income. The IRS looks at both higher-grossing sole proprietorships and smaller ones. Special scrutiny is given to cash-intensive businesses (taxis, car washes, bars, hair salons, restaurants and the like) as well as to small-business owners whose Schedule C’s report a substantial net loss.

Take a look at these eight filing scenarios that could attract unwanted IRS attention.

CALCULATOR: What's Your Risk of a Tax Audit?
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