Self-employed people face higher audit risk than employees. Learn the documentation system that makes a tax audit manageable and keeps you protected even years after filing.
Self-employed people are audited at higher rates than employees. Reasons: more complex returns, higher potential for misreporting, Schedule C deductions that can appear suspicious if unusually high.
An audit is not an accusation. It is a request to verify the information on your return. With good records, audits are manageable. Without records, they are catastrophic.
For every business expense:
Receipt or invoice: Saved digitally. FlowFund, Wave, and Expensify can store photos of receipts.
Business purpose: A note on what the expense was for. A restaurant receipt that says Client dinner with [name] to discuss [project] is documented.
Date and amount: The receipt provides this.
For income:
All 1099-NEC forms received
Bank statements showing all deposits
Invoices for all client payments
Payment platform exports (Upwork, PayPal, Stripe)
If claiming a home office deduction:
Photographs of the workspace
Floor plan showing square footage calculation
Lease or mortgage statement showing total property size
Utility bills for the period
In the US, the IRS generally has 3 years from your filing date to audit. Keep records for at least 3 years after filing. If the IRS suspects substantial underreporting (25%+), they have 6 years. If fraud is suspected, there is no time limit.
Keep all tax records for 7 years to be safe.
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