Freelance writing businesses are as susceptible as any small business to an audit. The very thought of the IRS honing its sights in on you is enough to make even the toughest among us break out in a cold sweat. The IRS tends to see small business owners as guilty until proven innocent, and it can really cause untold amounts of stress.
Over the next few posts, I want to explore the idea of a tax audit for your freelance business. We’ll talk about the types of audits today, and we’ll go from there into looking at what you can expect when you do get audited and what you can do to prepare for an audit later on.
There are a few basic types of audits you might find yourself facing in your freelance writing business:
A Correspondence Audit
This kind of audit is one in which the IRS asks you to provide documentation for a specific item on your tax return by a specific date. This is relatively routine for certain types of items. With this one, you simply provide the documentation and go on about your business.
Office Audit
This is the next step up. The IRS will ask you to come to the closest IRS audit in order to provide documentation on one or more items. You might be able to send the documentation, but make sure they get it and that the IRS cancels the appointment before you just don’t show up.
Field Audit
This is the kind of audit we have nightmares about. The IRS will ask you for documents related to many different items on your tax return. Your records will be thoroughly reviewed.
Taxpayer Compliance Measurement Program Audit
This is an audit that requires you to document everything. These audits happen randomly, and don’t really have anything to do with how well you prepared your return. They’re used primarily for research and statistical purposes.
Criminal Investigation Audit
If the IRS thinks you’ve lied on your tax return, they’ll conduct a criminal investigation. If they think you’re guilty and can prove it, you can face fines or even jail. If you find yourself in this situation, get an attorney. Fast.
Good article.
Having been audited by the IRS over the years, I stopped listing business deductions, which is what the IRS seems to audit the most. Since I stopped claiming deductions, my refund might be smaller, but the IRS has stopped auditing me, which is worth a lot to me.