Being audited is hardly any fun. People who work one job and see their taxes taken out via a W-2 generally do not have to worry about audits. Standard deductions — as opposed to itemized deductions — do make things easier. Persons who supplement their regular job with an entrepreneurial work-from-home endeavor do not get a coveted W-2. No taxes are taken out when someone works as an independent contractor. If the 1099 is filed by the company hiring the services of the budding entrepreneur, the IRS knows exactly what the person has earned. Or does it?
The figures reported on the 1099 form reflect the gross amount and not the profits. Independent contractors need to file a Schedule form, a form that details net profits or losses on a business. Yes, independent contractors are, for all intents and purposes, a business. This means deductions can be made to cover the costs associated with running the business. The help of a Salt Lake City CPA definitely would definitely make sure the Schedule C and the rest of the tax return are filed accurately and properly.
Yoga and Rent
A part-time yoga instructor may teach private sessions at $50 an hour. Four sessions a week would yield a gross amount of $200 per week. If the studio takes a 15% cut as rent, then the profit derived would be $170. The 15% rent could be a viable deduction.
Deducting the cost of yoga pants and their cleaning may seem like a reasonable deduction, but these deductions probably would be invalid. The IRS has very clear guidelines for deducting apparel and uniforms. Yoga pants might not meet the following two requirements: the clothes must be worn as a condition of employment and are not suitable for everyday wear.
Making a mistake with a deduction can lead to an audit and other problems. This is why it is important to work with a CPA in order to be sure all deductions are airtight.
The Massive Tax Code
Someone who is not familiar with the tax code and all its rules and regulations could end up really botching a return. In addition to an audit, the IRS could levy a harsh civil penalty — a monetary fine — for egregious errors.
Figuring out the tax code is not a job for someone who is unfamiliar with it. The job is best left to a CPA so problems can be avoided.
Dealing with Troubles
No one can guarantee an audit won’t happen. If a problem does arise or something on the return is questioned, a CPA working on behalf of an honest entrepreneur can help resolve the matter swiftly and properly.