Tips for Avoiding an IRS Audit This Tax Season
Each year, the Internal Revenue Service chooses to reexamine certain taxpayers' tax returns, in a process known as an audit. The reasons why the IRS might find your return to be suspicious can vary, but you can take certain measures to reduce your audit risk.
While the exact criteria that qualify tax returns for an audit are a closely guarded IRS secret, accountants, tax attorneys, and paid tax preparers agree that certain return characteristics are more likely to draw the IRS's eye. So how can you beat the audit odds? Obviously, you should always be honest about your financial situation during tax season, and a tax expert will be able to help you accurately determine what you owe. But in addition to honesty and accuracy, you can take certain tangible steps to minimize your audit risk.
Use a Qualified Tax Preparer
Look into a tax preparation expert's history before hiring him. Research online to find client reviews, certification and continuing education records, and whether the individual or his firm have been flagged in the past by the IRS or the Better Business Bureau. If your accountant or tax attorney is on the IRS's radar, chances are greater that your tax return will come under close scrutiny, even if you're confident that you've provided accurate financial information.
Report All Your Income
It may be tempting not to report income from every small side job, especially if you didn't receive a W-2 or 1099 from those employers. However, just because the employers didn't send you a form, it doesn't mean they didn't report having paid out that sum€"and your name might be mentioned in their documentation. Rather than risk a lengthy tax audit, report freelance work, contract income, and tips as you would any full-time job.
E-File
Because handwritten tax returns are more likely to have errors, they may have a higher audit rate, as the IRS wants to ensure it's getting its due from every taxpayer. Diminish your audit risk by filing electronically, instead.
Avoid Suspicious Deductions
You should claim all deductions to which you're entitled, but be aware that some deductions are more likely to make the IRS suspicious, because many people claim them falsely or overstate their deductions. This is particularly an issue for self-employed individuals. Red flags include the home office deduction, small business loss deductions, and deductions that blur the line between business and hobby. If you file a Schedule C form to claim deductions for your small business, ensure that you aren't overstating your losses. If you claim a home office, make sure you utilize that area as your primary business location, and only for business activities.
In a perfect world, only truly dishonest individuals would be audited. However, it's the nature of the system that even taxpayers with the best of intentions will sometimes be subjected to an IRS tax audit. If you find yourself in need of audit help or other tax resolution services, contact an experienced tax professional to plead your case and resolve the issue.
While the exact criteria that qualify tax returns for an audit are a closely guarded IRS secret, accountants, tax attorneys, and paid tax preparers agree that certain return characteristics are more likely to draw the IRS's eye. So how can you beat the audit odds? Obviously, you should always be honest about your financial situation during tax season, and a tax expert will be able to help you accurately determine what you owe. But in addition to honesty and accuracy, you can take certain tangible steps to minimize your audit risk.
Use a Qualified Tax Preparer
Look into a tax preparation expert's history before hiring him. Research online to find client reviews, certification and continuing education records, and whether the individual or his firm have been flagged in the past by the IRS or the Better Business Bureau. If your accountant or tax attorney is on the IRS's radar, chances are greater that your tax return will come under close scrutiny, even if you're confident that you've provided accurate financial information.
Report All Your Income
It may be tempting not to report income from every small side job, especially if you didn't receive a W-2 or 1099 from those employers. However, just because the employers didn't send you a form, it doesn't mean they didn't report having paid out that sum€"and your name might be mentioned in their documentation. Rather than risk a lengthy tax audit, report freelance work, contract income, and tips as you would any full-time job.
E-File
Because handwritten tax returns are more likely to have errors, they may have a higher audit rate, as the IRS wants to ensure it's getting its due from every taxpayer. Diminish your audit risk by filing electronically, instead.
Avoid Suspicious Deductions
You should claim all deductions to which you're entitled, but be aware that some deductions are more likely to make the IRS suspicious, because many people claim them falsely or overstate their deductions. This is particularly an issue for self-employed individuals. Red flags include the home office deduction, small business loss deductions, and deductions that blur the line between business and hobby. If you file a Schedule C form to claim deductions for your small business, ensure that you aren't overstating your losses. If you claim a home office, make sure you utilize that area as your primary business location, and only for business activities.
In a perfect world, only truly dishonest individuals would be audited. However, it's the nature of the system that even taxpayers with the best of intentions will sometimes be subjected to an IRS tax audit. If you find yourself in need of audit help or other tax resolution services, contact an experienced tax professional to plead your case and resolve the issue.