Five Ways to Avoid a Tax Audit as a Freelancer

Tax Audit IRS Accountant Freelance Business

Freelancers & the IRS Audit

As a freelancer, one of the most frightening things you will ever experience is an audit from the IRS. Audits are scary for anyone, but they are especially scary for a freelancer who may not even realize just how much they’ve been holding back from the IRS. Though it’s a scary process, it’s something which can easily be avoided with a bit of elbow grease.

Here are five ways you can avoid a tax audit as a freelancer:

Refusing to Report Income

Missing income can be a huge red flag for the IRS, especially because according to the IRS, they know when you make money even if you don’t report it. No 1099? Getting paid under the table? It doesn’t matter, make sure you’re reporting it as long as it’s over $400.

Reporting Too Many Business Expenses

As a freelancer you have the opportunity to mark lots of things as business expenses; however, make sure whatever you deem to be business related really is just that. The more business expenses you have, the more red flags you’ll put up to the IRS because they’re trained to notice a fluff of business expenses.

Home Office Expenses

A home office expense is something that most freelancers and business owners claim, making it one of the most popular expenses to deduct. Because of this, the IRS is pretty strict on what you can call a home office, and if you’re trying to deduct a portion of your bedroom or kitchen you may as well forget it because the IRS isn’t going to accept that.


If you’re responsible for doing your own taxes as a freelancer you are bound to make lots of mistakes, especially because you’re probably not calculating your numbers correctly. Also, be careful not to round your numbers up too high or down too low. The IRS also pays attention to miscalculations, and if you’re making numbers up it is bound to raise red flags.

Yearly Business Losses

If you are supposedly losing money year after year in your business, the IRS will take note. You won’t be penalized for your losses, but it will make the IRS wonder if in fact you are lying about losses just so you can protect your personal assets.

The best thing you can do to protect yourself from the IRS audit is to simply hire an accountant or a CPA to do the work for you. It will save you a lot of time and a lot of money in the long run.

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