3 things independent contractors do that trigger audits

Independent contractors may encounter issues with the IRS more easily than others. This is because taxes are not automatically withheld from their paychecks like they are with regular employees.

Because they must do their own estimates and quarterly tax payments, mistakes are not uncommon. Errors may result in fines or even an audit from the IRS, neither of which are pleasant. There are certain things the self-employed do that catch the attention of the IRS, triggering audits.

1. Wrongfully claiming home office expenses

The only space people can claim for a home office deduction is a place used solely for business/freelance work. If a person does anything else in the workspace at any time, he or she cannot legally use that area to obtain a deduction. A percentage of insurance, phone bills, utilities and other expenses related to a home office are deductible, but the IRS carefully examines such deductions. The likelihood of an audit goes up substantially if the government discovers you are wrongfully claiming a place as a home office.

2. Wrongfully claiming vehicle expenses

Car expenses are deductible, but only if the individual filing incurred them for business reasons. One big mistake is claiming 100% automobile business use; this is an unlikely scenario and attracts the attention of the IRS.

3. Not reporting all income

It is a fallacy that if a self-employed individual makes below a certain amount, he or she does not need to report it. While they do not have to pay taxes on pay below a certain minimum ($400), workers must divulge any money made to the government, even if it is only five dollars, and not doing so looks suspicious to authorities.

It is important to accurately relay income and expenses. Being honest when filing taxes helps people avoid audits.