In 2019, the IRS assessed nearly $40.5 billion in civil penalties. Nearly $14.2 billion was assessed in civil penalties on individual, estate, and trust income tax returns. The causes and excuses are numerous and varied, but the one thing that is consistent that, no matter the underlying reason for the outstanding debt, the IRS will want their money. You could try to handle it yourself, although that may be what got you into the mess to start with, or you could receive help from a #1 rated tax relief company, Community Tax.
If you’re a freelancer or small business owner who finds yourself in this situation, rest assured that the situation can be resolved. It has been shown that returns from these types of businesses tend to be audited more frequently than large corporations as they are less regulated and often make more mistakes (whether honest or otherwise). Let’s start with defining some of the reasons that may red-flag you.
Overclaiming Home Office Deductions
Only the portion of your home in which work is actually being performed may be claimed. The IRS looks closely at this deduction, as it also allows the taxpayer to write off utilities and other expenses related to that portion of their home.
Claiming all Vehicle Expenses as a Business Deduction
As a freelancer or small business owner, it is likely that you use your own car for business, but the IRS will be very leery if 100% of the expenses are written off. Best to keep logs of your mileage for business use, with details about the travel purpose, and claim the mileage rate.
Claiming Losses Year after Year
While it is expected that a business will be in a loss situation for the first couple of years, if it doesn’t start to show a profit at some point, this could be a huge red flag for the IRS.