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Can You Avoid an IRS Audit?

Accounting and Taxes
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Can you avoid an IRS audit? Every year, the IRS audits about 1 percent of the tax forms filed, and they have the authority to do it. If you make between 20 thousand and 50 thousand dollars, you have only a .58 percent chance of being audited. There are some things auditors look for, so read on to find what might put you in jeopardy of an audit. If you need legal advice or have questions about an IRS tax audit, please check with your lawyer.

  • Make sure your return is accurate and doesn't contain any math mistakes. That's the biggest reason the IRS coughs up tax returns and then scrutinizes them more closely. They think if you make mistakes, your return might contain other errors, too.
  • Don't over itemize your deductions. It's a red flag to IRS auditors if you itemize a large portion of your income as deductions. The same is true with business deductions. Don't over itemize items like meals and entertainment, or travel; those are big red flags to the IRS.
  • Don't claim overly large charity donations, especially in relationship to your overall income, especially if you claim they were cash donation. The IRS would probably question this and demand proof.
  • If you have a side business or are self-employed, make sure it doesn't look like a hobby business to the IRS. That's when you don't make any more than your deductions, and you never make a profit with your business.
  • Make sure your income matches the forms the IRS receives. Your income should match the totals on your W-9 or 1099 forms, because the IRS does match up those forms with your return.
  • Complex business expenses and tax shelter investment losses can be triggers for IRS audits, too. If your return is that complex, you should probably have an accountant or CPA preparing your taxes, anyway.
  • If your business involves a lot of cash sales or tips, there's a good chance you might be audited sooner or later. Make sure you keep meticulous records of cash and tips, and have them available in case you're ever audited.
  • There are legitimate deductions that might raise red flags. For example, you have extremely large medical bills that can be deducted. To keep from raising a red flag, just attach copies of your medical bills to your return, even though it's not required. It can help answer any questions the deductions might raise.

The best way to avoid an IRS audit is to be open and honest on your tax returns, but save all of your financial documentation just in case.

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