How to Avoid an Audit on Your Tax Return
Each year Americans file their taxes and many have fears of being audited. Understanding some of the red flags can help you avoid an audit. The IRS is especially in need of funds and the only way to get them is to ensure each tax payer pays their fair share. The following will provide a few tips on how to avoid a tax audit.
Tip 1: If you make more than $100,000 annually your risk of being audited is greater. Maintain accurate records especially if you are itemizing, have large and varied investments, and ask a professional for help. Many companies such as H&R Block offer to represent you in the event if you are audited or if they make a mistake on your taxes when filing. These types of offers also exist when you use online or at home software products to file your taxes.
Tip 2: Having off shore accounts may put you at a higher risk to be audited. Hiding money in places you think are safe from the IRS may lead you to a potential audit for tax evasion. Income gained anywhere in the world must be reported to the IRS.
Tip 3: Business owners may place themselves at higher risk for audit when converting personal expenses into allowable business expenses. If you own a business then you should have legal business expenses to claim. If your business does not have a profit objective then you may face a risk of a possible audit if your claims for business expenses do not seem legitimate.
Tip 4: If you claim more dependents in your household than typical you may face an audit. Cross check with the individuals living in your household for a substantial amount of time if they are being claimed by another person on their taxes. If it is a minor you are not legally responsible for you may not be entitled to claim them on your taxes. Check with a professional CPA to find out the tax laws concerning dependents in your household to avoid an audit.
Tip 5: Avoid mistakes on your return. Doing the math correctly can lead to a happy IRS review, but if your return is riddled with mistakes an audit is sure to follow. Purchase an in home software package such as TurboTax or H&R Block to help you perform the correct math throughout your return. Check your return for errors before submitting the forms. Look for simple clerical mistakes such as juxtaposed numbers ($106,298 rather than $160,298 could create a huge problem on a tax return) or adding in more zeros than required during a donation amount.
Above all else, be as honest as possible when filing your taxes. Don’t hide taxable income, don’t claim deductions you shouldn’t be taking, be accurate in your accounting, and file an extension if you need more time. If you are audited, have all of your documents in order from donation receipts to loss reports. Work with local agencies if you need assistance when filing or hire a professional. You can also access the IRS Interactive Tax Assistant to find answers to questions you may have before filing your taxes. You can also access Publication 556, Examination of Returns, Appeal Rights and Claims for Refund. This publication details information about being audited.
Disclaimer: The above contents are suggestions for avoiding an audit by the IRS, are intended for informational purposes only, and do not constitute any legal or binding actions. Please contact a CPA or professional tax adviser to assist you with your questions and for filing your taxes.
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