Self-Employed Tax Attorney | IRS Audit Help

Being your own boss means being your own payroll department, and the IRS knows it. With no employer withholding tax and filing forms for you, income reporting, self-employment tax, and quarterly estimates all fall to you, and small mistakes compound into large balances and audits.

When the IRS questions your Schedule C, assesses estimated tax penalties, or pursues unpaid self-employment tax, business and personal liabilities are usually intertwined, so the business problem has personal consequences. Whiteford represents freelancers, independent contractors, gig workers, consultants, and sole proprietors in IRS audits, collection, and penalty disputes.

Why the self-employed face extra IRS risk

Employees have tax withheld from every paycheck; the self-employed do not. You owe self-employment tax on top of income tax and must generally pay in four quarterly installments, which is why a missed quarter turns into a balance quickly.

Cash-heavy businesses, deductions that are large relative to income, and losses year after year are all common IRS focus areas in examinations, and the agency pays particular attention to whether business and personal expenses are genuinely separate. The upside is that most of this is manageable with good records and, once a dispute starts, the right representation.

Common issues

Schedule C audits and unreported income

A Schedule C audit tests whether your income is fully reported and whether your deductions are real and ordinary. We act as the point of contact, keep the audit inside its stated scope, and address any question of unreported income early, because that is where a routine audit can turn serious.

Self-employment tax and back taxes

Self-employment tax covers Social Security and Medicare and runs about 15.3% of net self-employment earnings, on top of income tax, which is why balances grow fast when payments are missed. We get delinquent returns filed, quantify the real liability, and resolve the balance while managing collection.

Estimated tax penalties

The self-employed must generally pay tax in four quarterly installments, and underpaying triggers an estimated tax penalty. Relief and safe harbors can apply to the year assessed, and going forward the penalty can often be avoided by aligning estimated payments with the safe harbor thresholds.

Hobby loss challenges

If the IRS decides your activity is a hobby rather than a business, it can disallow your loss deductions under the hobby loss rules. The test is a multi-factor, facts-and-circumstances analysis of whether the activity is engaged in for profit, including evidence of businesslike practices. We defend the business characterization.

Home office and deduction disputes

The home office deduction is legitimate but frequently challenged. It generally requires regular and exclusive business use along with the other statutory conditions, subject to limited exceptions. We defend home office and other deduction positions and document them to the standard the IRS actually applies.

Worker classification and S corporation compensation

As a business grows, two issues recur: whether workers are employees or independent contractors under the federal common-law factors, where state tests may differ, and whether an S corporation owner pays reasonable compensation as wages. Unpaid payroll taxes can also bring a Trust Fund Recovery Penalty against a responsible person who acted willfully.

Recommended next steps

Separate business and personal accounts now, because that is the line the IRS looks hardest at.
Confirm what an audit actually covers before you produce records.
File every delinquent return before you negotiate a payment plan, since the balance is not final until they are in.
Align your quarterly estimates with a safe harbor so the estimated tax penalty does not recur.

How we help

IRS Audits Estimated Tax Penalty Tax Debt Relief IRS Collections Trust Fund Recovery Penalty

Frequently asked questions

The IRS is auditing my Schedule C. What should I do?

Find out what the audit actually covers before you produce anything. A Schedule C audit focuses on unreported income and the legitimacy of deductions, and the records you hand over in the first weeks shape the result. Representation keeps the communications and the scope contained, which matters most if the audit touches unreported income.

I got hit with an estimated tax penalty. Can it be reduced?

Sometimes. Safe harbors and relief provisions can reduce or eliminate the estimated tax penalty depending on your facts, so the assessed year is worth reviewing rather than simply paying. Going forward, adjusting your quarterly payments to meet a safe harbor is what stops the penalty from recurring year after year.

The IRS says my business is a hobby. Why does that matter?

If your activity is treated as a hobby rather than a business, your loss deductions can be disallowed, which can change several years at once. The distinction turns on a genuine profit motive, judged on a multi-factor analysis that gives weight to businesslike records and practices, and it can be defended with the right evidence.

Can I deduct my home office?

Yes, if the space is used regularly and exclusively for your business and the other requirements are met. It is a legitimate deduction that is challenged often, so the question in practice is documentation: what the space is, how it is used, and whether anything else happens there.

I owe self-employment taxes I cannot pay. What are my options?

Depending on your income, expenses, and assets, you may qualify for an installment agreement, currently not collectible status, or an offer in compromise, and penalty relief may be available if you meet the criteria. The right path depends on numbers an attorney can assess before you approach the IRS.

Where we work

All Whiteford offices where you can meet with an attorney

Maryland

Tax Attorneys for the Self-Employed

Why the self-employed face extra IRS risk

Common issues

Schedule C audits and unreported income

Self-employment tax and back taxes

Estimated tax penalties

Hobby loss challenges

Home office and deduction disputes

Worker classification and S corporation compensation

Recommended next steps

How we help

Frequently asked questions

Where we work

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