The Scarlet Letter was a fictional work set in the 17th century, about Puritan Boston and its society. The scarlet letter was an A, identifying a person who had committed adultery. This century for the IRS the leading indicator of a potential taxpayer whose audit could yield more funds to be given to the federal coffer the scarlet letter is C.
A taxpayer whose return uses schedule C increases their odds for receiving one of the 10 million tax audit notices. Data collected by the IRS shows these returns to be a honeypot for potential tax underpayment. Tax advisors have known for years this is the type of return most likely to be examined. When making selections for the targeted 10 million audit notifications schedule C filers will receive more than their percentage represents of total tax returns filed. Audit agents receive advanced training to spot or identify schedule C avoidance schemes.
These returns when audited will enjoy a high preference to be included in the 400,000 hard audits are audits from hell. If the audit agent is able to adjust the schedule C filers’ tax liability in one year, an IQ in the genius level is not needed to harvest more revenue from the previous four or six years of return filings.
A taxpayer can avoid use of schedule C by creating a legal entity such as an LLC or sub S Corporation. These acts costs a small amount and its toolkit possesses some items that can be used to further relief deduce tax liability including not just federal taxes but state taxes.
Always remember don’t knowingly cheat on your tax liability! Secondly if you have, yesterday is not soon enough to put 1040 X to use!
If you do not want to experience the death march to tax audit hell consult your tax advisor about the opportunity you may have to remove the Scarlet letters C from your tax life.
