6 Strategies for Avoiding An IRS Audit
March 25th, 2008 | by rachel |
Each year, at least $300 million owed to the IRS goes uncollected. In order to reduce the gap between the taxes that are owed and the money the government actually sees, the IRS conducts audits (or examinations). Proportionally, the number of individual tax returns audited each year is not that high. Thanks to reputation (and some TV shows), however, the idea of an IRS audit seems paralyzing. No one knows for sure how returns are targeted for auditing. Consequently, there is no “sure fire” way to prevent an audit. There are, however, strategies that will help not raise flags when your return is processed.
- Be totally and completely honest. When questions come up about your return, they can be resolved quickly and easily with truthful, accurate information.
- Act in good faith. When and if you have questions about what goes into your return, err on the side of caution. Ultimately, that may mean that you pay a little more money, but it could keep you from bringing attention to your return.
- Maintain meticulous records. Nothing can compete with accurate documentation. A paper trail is the best, quickest and easiest way to show that your return is correct. Better to have too much information instead of not enough information to prove you right.
- Limit expenses. One of the flags that puts the IRS on your trail is what would be considered “extreme” expenses. Regardless of the type of expenses they are, anything that seems out of line with your income will be noticed. Additionally, any appearance of covering personal expenses with funds intended for business or other purposes is almost a guarantee that your return will show up in the audit pile.
- Be careful about giving money away. Again, proportion is a key here. Giving money away is a great thing to do! Within the last couple of years, the laws have changed regarding documentation of charitable contributions. New, tougher regulations make it harder to fudge on monetary gifts. It’s still important to make sure that the proportion of your gifts is in line with your income and expenses. If you claim to give 25% of your income away, it probably won’t fly!
- Get professional help. Even if your tax returns are easy and straightforward, professional help could be worth the extra investment. For a relatively low price, a professional accountant or tax preparer can help you identify deductions that you may not be aware of. Also, a tax professional may be able to help you get your refund faster through e-filing. At the very least, tax professionals make your return look its best. With computer software, you don’t have to worry about calculation errors or sloppy writing. As technology improves, self-prepared returns are more likely to be flagged than professionally prepared ones.
Somewhere between 1 and 2 million individual tax returns will be audited for the tax year, 2007. No one can promise that yours won’t be one of them, but following these steps will definitely help!
FOR MORE INFORMATION:
IRS Publication #1 - Your Rights As A Taxpayer
IRS Publication #556 - Examination of Returns, Appeal Rights, and Claims for Refund