One in six of the 145 million tax returns that the IRS expects to be filed for the 2010 tax year will include a Schedule C for self-employed filers, and many of them will no doubt be subjected to an IRS audit.
The National Association for the Self-Employed had some advice for self-employed business owners in case they do get audited. The NASE noted that the IRS can review tax returns for up to three years, so now is the time to make sure all of the necessary paperwork and documentation is stored with the 2010 tax return.
"As long as taxpayers dot their I's and cross their T's when preparing their return, then there is no reason to worry about an audit," said NASE national tax advisor Keith Hall in a statement. "It's possible that you might even get a refund."
The audit selection process can be a complicated one. Here are a few tips to keep in mind:
1. Math Errors - This is the most common reason for an audit. Check and re-check the return to make sure all numbers, dates and Social Security numbers are included. Using tax preparation software can help eliminate these errors.
2. Prior Audits - Prior audits and matching tax indicators (e.g. you have the same small business and same typical deductions) might increase the likelihood of being audited again. This is particularly true if last year's audit included an additional tax assessment.
3. Statistical Sampling -- This accounts for most of the returns that are selected for an audit. The more complicated the tax return, the higher the chance of audit selection.
The NASE offers numerous tax tools and other tips to help the self-employed get through current and future tax seasons. For help organizing taxes, visit the NASE's Tax Resource Center. NASE members can also ask the organization’s tax experts their questions.