Category: Tax Audit

Category: Tax Audit

Common Tax Deductions Available for Self-Employed Individuals

Common Tax Deductions Available for Self-Employed Individuals

Tax deductions list

Self-employed individuals have a lot of flexibility in their day-to-day lives, but that flexibility also brings some different rules regarding taxes. Earnings on self-employment income are not taxed upfront like they are for people who receive a W-2 for their income. This requires individuals to plan their income accordingly since they typically have to pay more taxes either quarterly or annually. Self-employed people can experience some tax relief by looking at the tax deductions list and reducing their liability by deducting certain expenses. These are the common tax deductions self-employed individuals should not overlook.

Phones

Your cell phone or home phone can be deducted as part of your business. However, you need to be able to prove that the usage is for business purposes. Mixing business with your personal life can be problematic and too many deductions could raise red flags for a potential tax audit. If you use your phones for both business and personal use, keep records of how often you use them for each and you can deduct just the portion used for business from your taxes.

Vehicle Or Travel Expenses

Any travel expenses incurred directly for your business can be deducted. And 50% of expenses from meals and entertainment can be deducted as well. If you drive your vehicle for business, the gas, repairs, maintenance, toll bills and other expenses can be considered tax deductions. But like with the phones, it’s important to distinguish and keep accurate records of how often the vehicle is used for business purposes versus personal purposes.

Home Office Space And Office Supplies

When you have a home office space dedicated to your business, you can deduct some of your household expenses needed to run your business. This can include the internet, electricity and even the exact square footage of the room. Office supplies are also on the tax deductions list, including computers, printers, software, pens, paper and more. And if you have to pay any monthly or annual fees for subscriptions or memberships related to your business, don’t forget to deduct them also.

Health Insurance

A big tax deduction self-employed individuals can take advantage of is health insurance premiums. As long as you aren’t eligible for a health plan through your spouse’s employer, you should qualify to be able to write-off any health insurance premiums you pay. With the high cost of health insurance today, it’s worth looking into whether you can deduct the premiums paid.

Rocket Tax Relief can help you identify every possible tax deduction you qualify for. Being self-employed is a great accomplishment, but it also means you may not have the time to do things like search through the tax deductions list to see what qualifies as a deduction. When you contact us, we will work with you to fully understand your story and your business and take the appropriate measures to ensure you get as much tax relief as possible through deductions.

Red Flags that May Cause a Tax Audit

Red Flags that May Cause a Tax Audit

Tax audit

When it comes to the IRS and tax audits, no one knows exactly what causes them to audit a particular tax return. However, some of the triggers or red flags are obvious and will bring a higher likelihood of starting a tax audit. Getting audited is one of the most common fears taxpayers have. The best way to avoid one is to proofread your return before filing and even have a professional tax preparer look at your return to identify any potential red flags. Here are some of the red flags that bring a higher probability of getting audited.

Suspiciously High Number And Amount Of Deductions

Claiming too many tax deductions that don’t match up with your income level or past tax returns is going to look suspicious to the IRS. Assuming your income has remained steady over the past couple of years, suddenly making a higher amount of charitable contributions this year to boost your tax refund is sure to raise some eyebrows. Rental property expenses and other similar expenses that are out of the ordinary could prompt a tax audit as well. If these deductions are legitimate, be sure to keep all documentation to prove to the IRS that they are accurate and you shouldn’t have any problems.

Too Many Dependent Exemptions Claimed

When you’re filing as the head of household and have an unusually high number of dependent exemptions, you’re more likely to be audited. This is especially true if your income is in a lower tax bracket. Your dependent exemptions are some of the easiest to prove, so as long as the information on your IRS forms are accurate, then the audit should be a simple one.

No Expenses On Self-Employment Income

If you claim the Earned Income Tax Credit, but don’t have any expenses on your self-employment income, the IRS may wonder why that’s true. Every source of self-employment income is unique so it’s possible you may not have any expenses in a particular tax year. You may just have to answer some questions from the IRS, but the audit process should not be extensive.

A Large Number Of Business Losses

Business losses will happen at some point, but a significantly higher number from year-to-year will create a red flag. Other similar events include a large amount of income from a foreign source or non-taxable investment income. Again, while these create red flags for a potential tax audit, as long as you have proof of the legitimacy there should be no major issues or penalties.

Rocket Tax Relief is here to help you fill out your IRS forms accurately so you don’t inadvertently prompt a tax audit. Many audits can be handled and resolved quickly just by providing the IRS with more information. It’s always important to contact a tax preparer who helps with audit representation as well, and that’s exactly what we are here for. Contact us today if you’re preparing your taxes and want to reduce the chances of getting audited or if you’ve already received a notice from the IRS and need assistance responding.