Taxes are no fun to prepare, but doing them correctly can reduce the chances that the IRS will audit you. The likelihood of an audit is already very small, but it can increase significantly if you make mistakes, lie on your form or earn $1 million or more. The IRS searches for errors and omissions that will increase its revenue. Follow the se tips to avoid red flags that can get you audited.
Be organized throughout the entire process
Make sure you have received all your statements, reports and other paperwork before starting your tax return. This will help you be less likely to exclude important information that can lead to differences in documentation. Double-check all your figures to ensure they are correct and there are no calculation errors. Keep all records, receipts and documentation in the event of an audit to make it go smoothly and quickly. Some audits are done through mail and simply require proof from you to settle the matter.
Be honest and thorough
To try to keep more of your income, you may be tempted to hide some of your earnings or itemize unrealistic deductions. These will catch the eye of the IRS right away because it receives all your income statements and therefore can detect mismatching numbers. If you do have a legitimate, unusual deduction or situation, include an addendum explaining it and make sure you have the evidence to prove it. Deductions and exemptions can be the trickiest parts of filing taxes. It’s best to use professional assistance to eliminate red flags while still being able to claim everything you legitimately can.
Be aware of your special circumstances
The following circumstances will raise your chances of an audit:
- Owning a small business
- Having a foreign bank account
- Losing income from a hobby
- Donating to charity more than is normal for your income bracket
- Trading securities
- Using a home office
If any of these apply to you, know and follow the regulations concerning them to avoid an audit. There are other situations that the IRS looks for as well, so it’s best to consult with a tax attorney to determine if one of the situations apply to you to ensure your taxes are filed properly and thoroughly.
The truth is that the risk of an audit is very slim. As long as you do your part correctly and honestly, and work with a tax attorney, you probably won’t have to worry about it happening. If it does, you won’t need to fear because you’ll have nothing to hide.