Summary: Claiming Large Losses From Self-Employment

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8. Claiming Large Losses from Self-Employment
If you file a Schedule C to claim self-employment income, understand that you could increase your risk of triggering an audit. Small businesses, especially those that involve earning cash payments and have no unique business identifiers other than a taxpayer 's name, are among the favorite targets of the IRS DIF system and its staff of auditors. If self-employed, consider forming a limited liability company (LLC) or corporation because they 're audited less frequently than sole proprietorships. The tax advantages include qualifying for more deductions and being able to hire family members and offer them tax-advantaged benefits that legitimately reduce your tax burden.

Other IRS Red Flags to Consider
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Performing due diligence to avoid being scammed by fake charities
Never inventing income to claim tax credits
Claiming only proper amounts for the fuel tax credit
Avoiding frivolous arguments to claim credits or deductions that have been disallowed by tax court
Never inflating claims to get a temporary refund to serve as a business or personal loan
Disclosing offshore accounts that were designed to hide and shelter income through the Offshore Voluntary Disclosure Program

Make an Audit Unprofitable for the
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You can audit-proof your return by having it prepared by an experienced tax professional who can advise you about any risky deductions. That said, if you stand to gain substantial advantages by claiming legitimate deductions, expenses and credits, you can deduct even risky or creative expenses by keeping excellent records, performing due diligence in researching the situation and having a Certified Tax Coach behind you to prevent common mathematical errors, inconsistencies and improperly applied deductions.

A Certified Tax Coach, CPA or other Enrolled Tax Agent offers advantages in preventing audits and can represent your before the IRS if you are audited. Once you are audited, the IRS expects to make a return on its effort by employing technicalities and details that most taxpayers don 't understand.

Don 't be afraid to deduct those expenses that are materially involved in generating income or those incentives and tax shelters that you can legitimately use. You should be aware, however, that the more unusual the deduction or lower your tax burden on high income, the greater your burden of proof will be. Get a tax professional on your side who can help you plan, implement and authenticate you return to render it audit-proof, even if you 're audited. The rewards can help you build real wealth without worrying too much about audits and

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