How to Avoid a Tax Audit: Tips for Small Business Owners

By MBO Partners | September 12, 2019


Independent professionals have additional tax responsibilities above and beyond those of conventional employees. With extra forms and numerous potential deductions, it can be easy to overlook small details or miscalculate. While there’s no way to completely protect yourself from the dreaded tax audit, you can reduce your odds of being singled out by eliminating poor tax practices. Here are four best practices to follow to avoid being audited.

1. Double Check Your Math

Simple math errors are one of the most common tax audit red flags. Whether you’re filing on your own or looking over your accountant’s work, don’t hesitate to take a second and third scan through the numbers. Check the math, making sure the totals in your columns add up and that your capital gains and losses are recorded correctly. Use exact numbers rather than rounding up and rounding down, and confirm the numbers on your state returns match the numbers on your federal returns.

2. Review the Details

Another common reason the IRS may pull a filing is because people simply forget to sign their tax return. While this easily preventable oversight isn’t usually enough to trigger a tax audit, it can draw attention to your file which can expose other errors, omissions, and mistakes. Be sure to carefully review every page—print or digital—checking details such as your Social Security number, spelling of your name, or other small typos.

3. Always Be Honest

Underreporting income either drastically or consistently can put you at risk for a tax audit. You should be able to back up everything you report and claim on your tax return—especially as an independent contractor. Make a habit of tracking all of your expenses and receipts as well as the business reason behind them. Failing to report your true income in addition to extra money you may have received throughout the year, such as the sale of an asset like a house, can result in paying back-taxes, penalties, and interest, and lead to further investigation.

4. Claim Legitimate Deductions

The IRS allows the self-employed professionals to write off many crucial supplies, equipment, and costs. While this is a great benefit, these deductions are also more closely scrutinized. Deductions should be proportional to your income. Expensive meals, non-work-related travel, and home office deductions can be red flags. Many people abuse the home office deduction, so if you take this deduction, make sure you comply with the requirements. A home office must be your principal place of your business and you must use this space exclusively for conducting business. That said, if you have the documentation to back up your deductions, don’t be afraid to claim them.

Always remain prepared for a tax audit by maintaining detailed records of your business activities, expenses, and income, and keeping these records for a minimum of three years. Refer to IRS guidelines if you are unsure of anything, or speak with an accountant or bookkeeper.

Looking to minimize your risk and make sure your taxes are filed properly? Let MBO Partners handle taxes and while you run your business. For more information, contact us today or visit our independent professionals page for details.

The information provided in the MBO Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.

Find independent consulting jobs with top companies through MBO’s marketplace

Join Today!

Related Posts


Top 5 Tax Write Offs for Self Employed Professionals

November 10, 2021

The ability to manage your business expenses is not just good for your company, it’s also a good income strategy as an independent professional. As a business of one, you will incur fixed costs that cannot be billed back to clients. You’ll also need to handle expenses such as health care, retirement funds, and other…


How to Bid on Projects for Consulting and Win

September 29, 2021

If you run your own independent business, you likely know that writing proposals and bidding on projects is an integral part of your job. However, the formal Request for Proposal (RFP) process can be filled with tedious details that can feel overwhelming. Due to the complexity of this process, it’s important to understand how to best assess…

MBO red logo

Filing Independent Contractor Taxes: 4 Best Practices

July 16, 2021

Filing taxes as an independent contractor can be a tricky road to navigate. When you work as an employee, your employer is required to withhold federal income tax as well as Social Security and Medicare taxes from your payroll check, but as an independent you’re on the hook to do this yourself. When you work…

Learn more about the MBO Platform

For Independent Professionals

Start, run, and grow your independent business with MBO

For Enterprises

Find, manage and retain top-tier independent talent