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The IRS audits more than 50,000 businesses and 1,250,000 individual taxpayers each year, mainly via correspondence exams. Although no one can guarantee you will never be audited, you can lower your chances of being selected for an audit by following a few straightforward strategies.

Tip 1: Check Your Arithmetic

Double check your calculations for all the numbers on your tax return to ensure they are correct. IRS computers review the income and deductions on returns for accuracy and if yours has several miscalculations your return could be flagged for an audit.

Tip 2: Don’t Overstate Your Deductions

Make sure you have supporting documents to prove every deduction on your return. Your deductions are evaluated relative to other taxpayers in your income bracket by IRS computers. This is done to spot taxpayers claiming relatively high deductions, such as $25,000 in charitable contributions by a taxpayer with an adjusted gross income of $75,000.

Tip 3: Don’t Mix Business With Pleasure

Self-employed taxpayers are commonly audited by the IRS. If you are self-employed, keep mileage logs for the business use of your vehicle (list the date, location, purpose of your trip, and miles driven) and retain all receipts for meals and entertainment (on the back of the receipt write down the names of the people you entertained, their business relationship to you and the business matters you went over). Also, if you are a claiming a home office deduction, include only the amount of space you are using strictly as your office. The IRS does occasionally visit taxpayers to evaluate the accuracy of the percentage used to claim home office deductions.

Tip 4: Don’t Understate Your Earnings

Taxpayers in occupations that receive a substantial portion of their earnings in cash, such as waiters and small shop owners, or service-oriented professionals like lawyers, are also more likely to be scrutinized by the IRS. This is especially true if you are behind in filing and paying your taxes and if the IRS discovered that you failed to report income in the past. Be careful to not understate your earnings because depending on your profession, your clients may be deducting amounts paid to you on their tax returns. For example, the IRS may find out a lawyer understated income because a business deducted professional fees paid to that lawyer on its tax return but the lawyer never reported that income.

Tip 5: Keep All Your Supporting Documents

You may think you are in business but the IRS could have a different opinion if you are not making profits for several years. This is because people will rarely stay in a business that is not financially successful, unless of course they are in it for a hobby. While it is common for new sole-proprietors and startup companies to be unprofitable during the first few years in business, if you are consistently losing money, the IRS may want to evaluate your deductions more closely. You should have no problem proving that you are not in it for a hobby if you always maintain the best possible records to support your expenses.

Tip 6: Know the Difference Between Employees and Independent Contractors

If you run a business, make sure that the people who work for you are properly classified as either employees or independent contractors. Companies with a lot of contractors and few or no employees are more likely to be audited because the IRS will want to verify that these companies are not evading payroll taxes.

Tip 7: Attach Explanation Statements

Answer all questions on your tax return and attach statements to explain items on your return that may look suspicious to the IRS. For example, if you had $100,000 in business income during the tax year and deduct $75,000 for business travel, by attaching an explanation statement to your return you will reduce your chances of a full audit because the IRS will see that you have a basis for the deduction.

Final Notes

Keep in mind that if you are selected for an audit, you will be required to provide the IRS with supporting documents of all business deductions taken, such as travel, meals and entertainment expenses, to prove that they were a necessary cost for your business. The more organized you are, the better your chances of the IRS agent assigned to your case concluding that you do not owe additional taxes.

Keep all your receipts and supporting documentation for at least three years after you file your return because the IRS can audit you anytime during this time frame. However, if the IRS suspects you of fraud there is no time limit for which you can be subjected to an audit.

Accounting issues and the self-employed

When it comes to starting your own business or joining the ranks of the self-employed, accounting is one of the most critical aspects operating your business. It’s real easy, when you are first starting out, to get wrapped up in choosing a business name or designing your business cards. Unfortunately, without a sound understanding of the numbers, you may find yourself losing that business and working for another employer.

There are a number of reasons why you should choose a New York CPA for freelancers for your accounting and tax needs, especially when you are self-employed. For all practical purposes, when you are self-employed, you are what is known as an independent contractor. Additionally, when you are classified as such, there are different accounting and tax implications that you need to be aware of. Herein lays the value of hiring a New York CPA when you are self-employed.

Why you should hire a CPA if you are self-employed

Being self-employed or an independent contractor is far different from being a business owner. Unlike the business owner who does not have to be so concerned with the daily operations or be as hands-on with that business, the self-employed individual must be totally aware of the day-to-day operations of their business. They have to utilize a strict hands-on approach if they have any hope of surviving in their endeavors.

The most significant reason for hiring a New York CPA when you are self-employed is the tax responsibilities that you face. When you are self-employed, there are certain tax obligations that you have to meet compared to when you are working as an employee. A qualified CPA is well aware of these differences and can assist you in staying in the good graces of your local, state, and federal tax authorities.

The bottom line is that CPA’s are not the number crunching individuals that standard accountants and bookkeepers tend to be. They understand accounting and tax concepts that only apply to the self-employed individual and speak their language. In a sense, CPA’s are business advisors and financial strategists that can help you with business or personal accounting and tax issues.

Choosing the right CPA when you are self-employed

You will quickly discover many New York CPAs for freelancers are available when starting your search for one, so it is imperative that before you select one that you know exactly what you need them to do for you. If you are searching for New York CPA for the self-employed, consider the following suggestions:

Ask for recommendations initially – your local area Chamber of Commerce as well as fellow business owners are excellent sources of recommendations.

Interview several experienced New York city CPAs – you should interview 3 to 6 and find out if the services they offer are conducive to your employment category. Inquiring about their years of experience and seeing their credentials are also important.

They need to work around your schedule – being able to contact a CPA when you need them is critical so they need to work with your schedule, not the other way around.

Compare rates – if at all possible, ask for that CPA’s rate sheet so you can compare all of them at once. Additionally, you need to find out which CPA provides you with the most services for your money.