In the game of “Would You Rather?” few people would rather be audited by the IRS than suffer a different unpleasant fate. And who can blame them? The IRS is scary. But when you have Equinox Owner-Operator Solutions on your side, you won’t have to worry.
How Does the IRS Choose Who Gets Audited?
The IRS computer system looks for specific triggers on tax returns. Their software compares different sections of your tax return, then compares these to earnings reports they have received from companies you worked with. If they find discrepancies, they flag these returns for audits.
What else is a “red flag” for the IRS?
Among the general population, the audit rate is 0.6%. For small-business owners such as independent contractors and owner-operator truck drivers, that rate jumps by four times to 2.3%. Equinox can help you if you are flagged for an audit.
Reporting losses three years in a row
If you continually report losses on your business income, the IRS will wonder how your business is able to continue if it never makes money. If you have three years of losses in a row, that third year will result in an audit flag. Ask the team at Equinox to review your tax returns for help correcting errors.
Not reporting all your W2 and 1099 income
When you make the change from being a W2 employee to being an independent contractor or owner-operator, the way you pay your taxes changes. An employer is no longer making deductions for you; you are responsible for paying your taxes on your own, once per quarter.
If you receive 1099s and do not claim them on your taxes, the IRS will know, because the company that issued the 1099 submits a copy to the IRS as well. Some truckers erroneously believe that these earnings must be reported separately from their W2 earnings. If you don’t report all of your 1099 income to the IRS, they will know, and they will send you a letter asking you to correct the discrepancies. If you get a letter like this, call Equinox.
The IRS is looking more closely at purchases and sales of cryptocurrency. Apps such as Robin Hood and other ways of purchasing stocks and cryptocurrency are easy for truck drivers to use, and thus are becoming more common tax returns. If you use cryptocurrency, have Equinox prepare your tax returns.
Claiming deductions in round numbers
The odds of your expenses being exactly $100, $250 or $500 are unlikely. These round numbers make it look like you are making up the amount. Keep receipts, and report your expenses in the amount that is on the receipt. Equinox handles receipts and expense reporting for our clients to help minimize audit risk.
What Deductions Are Allowed?
It can be hard to know what you are allowed to deduct as an expense on your taxes. While some deductions are allowable in some professions, the same deductions are not allowed in others.
Take home offices, for instance. The standards for qualifying for a home office deduction are very high. Your home office has to be 100% dedicated to business use. If you use your office to pay personal bills or surf the internet, or if you store personal items in it, your deduction for your home office will be disallowed.
This is a high bar for any business. In trucking — a business in which many drivers are out on the road for 320 days a year — it is hard to claim a home office expense. But if you are a fleet owner and you use your office every day helping with dispatch, etc., you are more likely to qualify for a home office deduction.
Don’t Fall for Tax Audit Scams
IRS scams are prevalent — don’t fall victim to them. The IRS will never call you to tell you that you owe money, that you are being audited, that your assets are going to be seized.
If you are being audited, the IRS will send a letter in the mail on IRS letterhead. We know it can be scary to get a letter like this. We urge you to call us right away; we can help. While there are lots of accountants out there who assist clients with audits, Equinox specializes tax issues within the trucking field.
Equinox Is in Your Corner
Running your business well and responsibly helps mitigate the risk of an audit. It doesn’t eliminate it, because audits can be done at random, and because perfectly legitimate actions can trigger an audit. However, having a solid business plan and a knowledgeable tax accountant who is well-versed in trucking issues is the best way to operate.
If you are flagged for an audit, we handle the communication between you and the IRS. This cuts way down on your stress level and leaves the work to us. We not only assist with audits for truckers, but we also help to minimize your tax liability as well as any penalties and interest that might come from an audit.
Equinox Owner-Operator Solutions is focused on exploring the business, accounting, and tax topics that matter most to truckers, particularly owner-operators, independent contractors, and professional drivers, but also fleet owners and small trucking businesses.
Contact us for help with bookkeeping, accounting, tax, and audit issues.