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Tax Tips for Self-Employed Filers

True or false: It's worth keeping track of every potential deduction, no matter how small.

True. No one wants to be buried in paperwork, but here's one place where attention to detail can pay off. Monica Rebella, an accountant at Rebella Accountancy in Tustin, Calif., saw this first-hand recently while working with a self-employed client who transcribes court documents.

"She didn't think taking expenses against her little business would make a difference, and I had to really work on her to give me expenses," Rebella says. By documenting and tallying all the woman's supplies, meals with her contacts, mileage, and home office and computer expenses, she saved her client more than $15,000 in taxes.

True or false: Being self-employed means you have very limited retirement account options.

False. While you give up the potential for an employer 401(k) match when you work for yourself, you do get access to other retirement plans. Joseph Kovar, an accountant at Sweeney Kovar in Danville, Calif., steers clients toward the solo 401(k). "It's not well known, but it allows self-employed taxpayers to contribute substantially more than they can with a SEP or regular 401(k)," he says

True or false: You should live in mortal fear of an audit.

False. Being audited is no fun. But if you're honest and upfront on your tax return, you'll probably never go through one. According to the most recent numbers released by the IRS, about 1 million tax returns were examined during the 2007 fiscal year. That was only 1% of all returns.

-- Reported by Elizabeth Blackwell in Chicago.
Elizabeth Blackwell is a freelance writer based in Chicago. She is the author of Frommer's Chicago guidebook, and writes for the Wall Street Journal, Chicago, and other national magazines.
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