4. Schedule C Income and Expenses
An IRS Schedule C is used to report the income and expenses of self-employed individuals, and often self-employed individuals fail to report all of their income, particularly cash-based transactions, says Lee Reams of the tax professional directory service TaxBuzz. “The IRS has studied various types of businesses to determine what percentage of total sales should be cash transactions.
Thus, the IRS knows about how much a self-employed person’s gross income for the year should be,” Reams said. In addition, self-employed individuals often don’t realize that credit and debit card companies report the total dollar amount of all transactions to the IRS via a Form 1099-K, Reams adds.
So, if the income you report to the IRS does not match what the transactions credit state and what the debit card companies report, you guessed it, an audit might be on the way.
