I know people who know people who know people who’ve been audited, and it was such an unmitigated horror for them that they want the world to know how to avert that sweaty situation.
Their tips can save you lots of time and energy, not to mention a whole bunch of money, plus penalty fees and aggravation.
Basically, there are two red flags for the IRS:
You don’t have a punch-the-clock office job–you basically do freelance work.
This sets off their alerts very loudly because they’re afraid you might be hiding income (whereas a full-time employee generally has a set salary, all on the books).
So what you have to do is…report everything! Even if it’s a small amount. Even if it came from Canada. Even if you didn’t get a statement on it.
Your inspiring honesty will help you avoid an audit–and if you do get one and they can’t find any hidden income, you’ll leave Scot-free, probably never to be bothered again.
By the way, they will summon copies of all your accounts to find out what was deposited. You can’t fool them (unless you’re Romney, lol).
*Similarly, you deduct part of your apartment as a work space.
This makes them crazy because a lot of people don’t understand what this kind of deduction really means.
Folks think that if you have a desk in your living room, that means you can deduct your whole living room.
They also rationalize that even though there’s a TV there, you sometimes use that for work, so that space is deductible–as is the sofa you watch it on, not to mention the cabinets full of books you occasionally use for research.
But the IRS won’t accept that. The deducted space has to be exclusvely for work–and chances are you can’t honestly claim that you’ve never used your sofa or TV for sheer pleasure.
So only deduct the true amount that you use as an office. If it’s just a desk and a computer, it might be a low figure like 10%.
So many people try to deduct 40% and more that the auditors smell blood. And believe me, they will come to your house and scope out exactly what’s going on.
That separate office you wrote off had really beter be a separate office.
End of sermon.
By the way, I wrote this from a small fraction of my apartment.