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My Audit Experience

downloadtaxYes, the IRS audited me this year.  It’s my first time!  It was all done through the mail and I am left very bewildered and confused.  Let me explain.

I live in Idaho and I am a nanny.  I watch children in private homes.  I used to have a licensed home based child care, and taxes were involved, but as long as I kept accurate records, it wasn’t so bad.  When I closed down my child care and went to being a nanny, I wasn’t sure of the laws.  I checked with the local city clerk’s office and was told I didn’t need any license or training to be a nanny.  It’s considered babysitting and anybody can do that.  I checked with an organization called Idaho Stars who is the ultimate in child care information for Idaho, and they could not find one law or rule concerning a nanny.  I also asked the opinion of the person who used to do my taxes on how to handle taxes, and was told since I am self-employed, I still file a Schedule C for my income.  For the last two years this is how I’ve done it.

At the beginning of April of this year, I got an audit notice.  They were questioning my income.  They wanted a copy of my license and a copy of my accounting books with proof of my income.  My official accounting consists of a notebook where I log all payments, and a computer copy of the same thing.  So, I sent a detailed letter explaining the whole situation to the IRS with a print out of my income.  By my calculations, I should have owed $540.00 in self-employment tax after deductions.

I finally heard back from the IRS, nearly five months later.  It was determined that since I have no business license, I am not a business.  I don’t have ample proof that I made this money, so therefore I didn’t make anything and owe no taxes.

Here is what I have a problem with.  Okay, true I only made $8,200 last year (and supported three people on this income), but I still should have to pay taxes on it!  Why should I not pay when someone else working part-time and not self-employed would pay taxes?  I don’t understand how the system works.  I am also at a complete loss as how to handle this year’s taxes.  I have no clue how to file if I’m not supposed to use Schedule C.  I will probably have to pay through the nose to have an accountant do them for me.

I’m just still in shock and wanted to share.  What a world, what a world!

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19 thoughts on “My Audit Experience

  1. That is crazy! I hope we don’t run into any problems when we file taxes for this year since my husband is now self-employed as well. I would be so worried if the IRS decided to audit us – even if I knew we hadn’t done anything wrong!!

  2. In Canada here our tax law is somewhere between 8 and 10,000 you can earn without paying tax. Perhaps it is similar in the U.S. There are plenty of small accountants around that you can hire to do your annual taxes. You will be safer and at peace and no worries and from what I understand of your income, your filing wouldn’t require much and I don’t see much of a charge for the service. Try googling someone under ‘income tax refund’ or the like, you don’t need an expensive accountant. I hope this helps!

    • Thats true in the US. You have to make so much before you have to pay and you didn’t. Our pensions are taxed, but due to the small income and standard deduction, we get most of it refunded each year which is nice. Being self employed (not a businnes), you don’t have to pay in advance unless you start making that yearly amount each month. Then the IRS will come for you.

  3. What you earned last year supported three people? Ouch.
    I’m no accountant, but it seems to me, even in my country, if you earn less than a certain amount in the year, you do not pay taxes. Maybe you have such a policy too?

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