Avoiding a Tax Audit
Five words you don't want to hear when you answer your phone: "Hello, this is the IRS." Nobody really likes paying taxes, but there are worse things in life-- like getting audited. In actual fact, less than one percent of tax returns are selected for audit, according to the IRS. There are some easy ways to avoiding audits.One advantage to filing your taxes with an online preparation program is that they are likely to catch errors you make. A number of tax software and online programs will even red flag entries that might get you audited. If you get professional tax preparation from an enrolled agent they may also point out entries that might get you audited.
Red-flag categories
There are several categories of tax return entries which might draw the attention of the IRS. If your tax situation fits into the categories below, and you are sure that you are entitled to these deductions, then go ahead and fill them in making sure to have the proper documentation of course.
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- Schedule C. If you have your own business you are more likely to be audited. It is doubly important for you to keep excellent records of all transactions.
- Consistent losses. If you claim business losses year after year the IRS is likely to think you are doing something suspect. Document all transactions carefully and document your intent to earn money, even if you are not.
- Home Office deduction. This will attract auditors' attention since it is so frequently used in error. Make sure to review all the specific criteria allowing you to file for this alluring deduction.
- Charitable deductions. Get receipts for all donations and be aware that cash donations to different charities fall into different categories. Some donations to religious organizations are 100%, while some political donations are 50%.
- Unusual deductions. For any rare deductions file a Form 8275.
- Married filing separately. Be sure to know which deductions go on each return.
- Frequent job changes. These attract attention of auditors. Make sure you have a good explanation.
- Filing an Estate Tax return. These kinds of returns are often audited.
- City dwellers. A category that tends to be audited more often.
- Undocumented income. The IRS knows your income. If it doesn't really match up with your lifestyle they will wonder why.
- An office audit requires you to go into an IRS office with all your receipts.
- A field audit entails an agent coming to your business (small businesses are the likely target of these) and going over all your tax documentation on site.
- A correspondence audit is conducted by mail.
