The IRS Audit Blog

Posts Tagged ‘self employment tax’

• Check this out if you have children

Got kids? They may have an impact on your tax situation. Listed below are the top things the IRS wants you to consider if you have children. – Dependents. In most cases, a child can be claimed as a dependent in the year they were born. For more info …

Paying Taxes : How to File Taxes If Your Status Is Self-Employed

Question: Chances of being audited by the IRS?

I run a very small business from home that is prob going to make no more than 8,000 my first year. I just started it early this year and will be having a CPA handle everything for me (even if I can do it myself I’d rather have it done right for sure) but I’m a little freaked out about getting audited bcause a friend told me people filing Schedule C forms tend to get audited alot. I have good records of payments but my bank account is messy and I don’t want to have to deal with an audit. If I’m single, not claiming EIC (im not old enough), and have only about $300 of business expenses… What’re my chances of being audited? I’m stressing out thinking about it now.
Oh and I live in an apartment with a roommate and dont have any dependents or anything to claim on my personal 1040 return either.

Answer: The technically correct thing for you to do is to have a separate checking account for your business. Failing that, I highly recommend that you keep records showing which deposits are for business and which are gifts, other sources of income, etc. If you get paid cash, you must keep good records.

The audit rate on a Schedule C is close to five times higher than a tax return without one. Relax, the percentage still isn’t that high and the IRS looks at other factors. If the net $7,700 income is your only income, then you won’t have to pay federal income taxes. You will have to pay $1,088 in self employment tax. (I used the calculator at http://www.taxbrain.com/taxcalculator/default.asp to run the numbers.)

Talk to your CPA. He or she will likely give you at least half an hour of “free” time to discuss what you can do to improve your records and lower your taxes.

I hope this helps.
Gary

Signpost – A taxing decision

Every year millions of Americans deal with one of the certainties of life — taxes. Weber State University students make the decision to have their taxes prepared by a professional or prepare their taxes themselves using computer software.