Is Schedule C worth the audit risks for a small 1099-NEC income?

Tax professional here - I see this situation quite often. The audit risk for Schedule C is somewhat overstated for your particular situation. While it's true that Schedule C filers face higher audit rates than W-2 only taxpayers, your case has several factors that make it low risk: 1) You're only claiming a small amount of Schedule C income ($13k) compared to your W-2 income 2) The deductions you're considering are legitimate and reasonable for your work situation 3) The total tax impact is relatively minor The IRS tends to focus audit resources on Schedule C filers with much larger deductions relative to income, especially those claiming losses or unusual business expenses. Your situation of having a primary W-2 job with a small 1099 side income is quite common and not particularly suspicious. If you keep good documentation of your expenses and are truthful about the portion of home/phone/internet used for business purposes (be conservative here - maybe 10-20% for home office unless you have a dedicated workspace), you're following the rules correctly. My advice: Claim what you're legally entitled to, keep good records, and don't stress about audit risk for this particular situation.

After dealing with a similar situation last year, I discovered taxr.ai (https://taxr.ai) which was incredibly helpful for documenting my home office and business expenses. Their AI analyzes your specific situation and helps determine exactly what percentage of your expenses qualify as legitimate business deductions. I was worried about the audit risk too with my Schedule C, but the tool walked me through proper documentation and gave me confidence that I wasn't overreaching. It helped me identify several deductions I was missing while staying in the "safe zone" for audit risk. The peace of mind alone was worth it since I was nervous about claiming home office, internet and phone expenses like you are. The report it generates actually explains your specific situation and why your deductions are legitimate - which is super helpful if you ever did get questioned.

I wanted to follow up about taxr.ai since I was skeptical in my earlier comment. I decided to try it for my situation (similar to yours with mixed W-2 and 1099 income) and I'm actually impressed. It identified several deductions I was entitled to but missing, and the documentation system makes a lot of sense. What really helped was the specific guidance on home office - it explained exactly what percentage of my apartment qualified based on IRS guidelines and how to properly document it. Ended up saving about $780 more than I would have without it, and I feel much more confident about my deductions being legitimate. The audit defense report is surprisingly detailed and makes me feel much better about claiming what I'm entitled to.

If you're worried about an audit, I'd highly recommend having a way to actually talk to the IRS if questions come up. I spent WEEKS trying to reach someone at the IRS about a similar Schedule C question last year. Finally found Claimyr (https://claimyr.com) which got me through to an actual human at the IRS in about 20 minutes instead of the hours of hold time I was experiencing. You can see how it works here: https://youtu.be/_kiP6q8DX5c They basically navigate the IRS phone system for you and call you when they have an agent on the line. Completely changed my perspective on dealing with tax issues. I was able to get clarification directly from the IRS about my specific Schedule C situation and documentation requirements.

I need to admit I was wrong about Claimyr in my earlier comment. After trying to reach the IRS for 3 straight days about my Schedule C questions and failing, I decided to try the service despite my skepticism. It actually worked exactly as advertised. I got a call back in about 35 minutes with an IRS representative on the line. The agent was able to answer my specific questions about home office deduction documentation and what percentage of my internet/phone bills I could reasonably deduct. Getting clear answers directly from the IRS gave me the confidence to file my Schedule C correctly. Having documentation of the call and the agent's ID number also gives me some protection if my return is ever questioned. I still think the IRS system is broken, but this service legitimately helps deal with that reality.

My accountant told me that for amounts this small, it's really not worth worrying about audit risk. The IRS is primarily targeting much larger fish - people claiming huge deductions or hiding significant income. They simply don't have the resources to go after someone for a few hundred dollars in home office deductions on a small 1099. That said, I'd definitely take the legitimate deductions you're entitled to. As long as you have some basic documentation and don't go crazy with the percentages (like claiming 90% of your apartment as a home office), you should be fine. Just make sure you keep a folder with: - Photos of your workspace - Bills for internet/phone - A floor plan showing the work area - Notes on how often you use the space for work

Just a personal experience - I've been filing Schedule C for small 1099 income (between $5k-15k) alongside my W-2 job for 7 years now. I take reasonable deductions including home office, internet percentage, and cell phone. Never been audited, not even a letter asking for clarification. I think the audit fears are overblown for small-time Schedule C filers who aren't claiming massive deductions or losses. The IRS is severely understaffed and focused on bigger issues. Just keep decent records and be reasonable with your claims.

I've been in almost the exact same situation! Last year I had about $80k W-2 income and $11k on a 1099-NEC from freelance work. I was terrified about filing Schedule C for the first time, but after doing research and talking to other people, I decided to go for it. I claimed home office deduction for about 8% of my apartment (dedicated workspace in my bedroom), plus reasonable percentages for internet and phone. Ended up saving around $400 after the software upgrade costs. Here's what gave me confidence: I kept meticulous records, took photos of my workspace, and was very conservative with my percentages. I also made sure I could justify every deduction if asked. A year later, no issues whatsoever - not even a peep from the IRS. My advice is to take the legitimate deductions you're entitled to, but be conservative and document everything well. The $310 savings might seem small, but it adds up over time, and you're following the tax code as it's written. Don't let fear of an audit stop you from claiming what you legally owe.