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Self-Employed? Avoid These Audit Red Flags on Your Tax Return


Being in business for yourself can be exciting, lucrative — and a great way to get in the sights of the Internal Revenue Service’s audit division. Short on personnel and funding, the IRS audited only 0.84% of all individual returns in 2015. But file a Schedule C to report profit or loss from a business, and your odds of drawing additional IRS scrutiny go up.

Schedule C is a treasure trove of tax deductions for self-employeds. And it's also a gold mine for IRS agents, who know from experience that self-employeds sometimes claim excessive deductions and don’t report all of their income. The IRS looks at both higher-grossing sole proprietorships and smaller ones. Special scrutiny is given to cash-intensive businesses (taxis, car washes, bars, hair salons, restaurants and the like) as well as to small-business owners whose Schedule Cs report a substantial net loss.

Take a look at these eight filing scenarios that could attract unwanted IRS attention.

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