It’s easy to view a side gig as simple extra cash, but small errors that seem harmless to the freelancers making them can quickly turn into red flags that put a tax return under the spotlight.
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GOBankingRates spoke to tax experts to identify these five common mistakes that might trigger an unwanted conversation with the IRS.
Underreporting Income
Not reporting all earned income is the most common mistake Sherman Standberry, certified public accountant (CPA) and CEO at My CPA Coach, sees freelancers make.
“The IRS still requires that all earned income be reported,” he said, even if no 1099 was issued.
David A. Perez, enrolled agent and CEO of Tax Maverick AI, added that the IRS now has greater access to payment platform data, including Venmo and other apps, making underreporting more likely to be flagged.
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Overstating Deductions
Some deductions face more scrutiny from the IRS than others, according to Standberry, for example meals, travel and transportation, so “taxpayers claiming them are required to maintain a much higher level of documentation.”
Perez added that claiming 100% vehicle use or deducting personal dinners can be audit triggers, so keeping scrupulous records, while essential for all expenses, is even more important.
Filing and Payment Errors
Failing to pay self-employment tax or underestimating quarterly payments is a big issue, and something that’s likely to attract the attention of the IRS.
Annette Nellen, CPA and tax professor at San Jose State University, explained that freelancers with net earnings over $1,000 must make quarterly estimated tax payments.
Reporting multiple years of losses while relying on other income also raises questions.
“The losses raises the issues of whether the activity is truly a profit-motivated business or instead a hobby,” Nellen said.
Incorrect Home Office Claims
A home office is one of the most common business deductions for freelancers, calculated on costs like rent and utilities and based on the square footage of the room compared to square footage of the property. The key consideration for classifying a space as a home office is that it must be used “regularly and exclusively for business.”
“Many freelancers incorrectly claim shared spaces, such as a kitchen table, which is a significant red flag for the IRS,” Perez said.
Round Number Reporting
If every expense on a Schedule C ends in a zero, for example $500 for supplies, $1,000 for travel, the IRS often flags it as suspicious.
“Real expenses rarely work that way,” Perez said, “And consistent rounding signals estimation rather than proper documentation.”
Detailed receipts for exact amounts prove that spending is being tracked instead of guessed at when tax season rolls around.
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This article originally appeared on GOBankingRates.com: 5 Mistakes Freelancers Make That Could Trigger an IRS Audit
