Tips for the Self Employed in Avoiding an IRS Audit

Tips for the Self Employed in Avoiding an IRS Audit

Tips for the Self Employed in Avoiding an IRS Audit

If you are self-employed, the chance that you have of being selected for an IRS audit will be closer to your ballpark. The IRS looks for red flags that when processing tax returns, targeting individuals to potentially audit. Self-employment is a flag in itself as the IRS wants to ensure that those who are self-employed are not trying to dodge tax laws through small business deductions. Tax preparers should be careful about preparing returns that show deductions that do not fit the category of “ordinary and necessary” business expenses to minimize the chances of a potential audit.


Here are a few tips to consider:

1. Home Office Deductions

Taking a deduction for a home office may increase your chance of an IRS audit, but if the deduction is worth it go ahead and take it. If the deduction is minimal in tax savings, you may want to reconsider whether taking the deduction is worth targeting you for an audit.

2. Is it really a business deduction?

Before you buy that big screen TV, consider “Will it really serve it’s purpose as a business expense?” It is important that the expenses that you are claiming as business deductions are honest business deductions.

3. Hiring family members

As one who is self-employed, you may be inclined to hire family members so that you can get more profit out of your business. This is fine as long as the family members are actually working.

4. Entertainment Deductions

If you are using business expenses to pay for entertainment, make sure that you are discussing business on the outing. It can be easy to slip into the habit of using your business card to pay for a meal or two that should come out of personal expenses, so be careful.

Red flags are not a guarantee that you will be audited, but they do increase your chances of one. Don’t hesitate to claim the deductions that you rightfully deserve. Just make sure that you can back them up with proper documentation if it is necessary. Remember though, that honesty is the best approach to avoiding an IRS audit.

We hope you found this article about “Tips for the Self Employed in Avoiding an IRS Audit” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or website

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Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

Alan L. Olsen, CPA, Wikipedia Bio is a proud sponsor of The American Dreams Show.



The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.

Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.

The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.

They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..

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Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…

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