Biggest Audit Risk on your personal return: Schedule C

Are you earning wages at a regular job and find you are incurring substantial out of pocket costs?  These costs are to be expensed on Schedule A as unreimbursed employee expenses.  However, if you don’t itemize –using Schedule A – you will be out of luck getting any benefit from these out-of-pocket costs.    So what is the remedy?  Many people decide to put   these costs on Schedule C to get a direct write off on these expenses.   However, when you employ this method, the IRS computers flag these losses and the risk of audit increases, especially if the loss is substantial.  When you already have a full-time job, establishing the business purpose of the Schedule C to an auditor is a losing proposition.  In the end, not only will you will be facing the additional tax, but interest and penalties as well. 

Posted in Things You Need To Know

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