Reducing the Chance of an IRS Audit When Filing

There is no surefire way to Audit-proof your tax returns, though you can cut the odds. Nevertheless, a messy return-cross out, sloppy handwriting, smudges-almost screams “audit me.” This tells the IRS that you are careless and disorganized. So does the use of round numbers for deductions-$1,000 or $12,000 instead of $978 or $12,127. It’s an Indication that you are estimating things rather than keeping good records. Here are some suggestions which may-or may not-work to reduce your audit risk.

  • If you claim large deductions for unusual items, such as an earth-quake, flood, or fire loss, attach documentary proof to the back of your tax return. Copies of repair receipts, cancel checks, insurance reports, and pictures are advisable. This won’t stop the IRS computer from flagging the return. These attachments, however, should catch the attention of the IRS classifier who next screens computer-picked returns for audit potential. If the person thinks you documentation looks reasonable, you won’t get audited.
  • Avoid filing an income tax return with Schedule C, Profit or Loss from Business, that reports a net loss from a small business venture. IRS auditors go after these returns like bees toward honey.
  • Report side-job income as other income on line 22 of your tax return. This should be done only if this income is relatively small, and you are not claiming any business deductions against it. Technically, side- job income is usually reported on a Schedule C, profit or loss from business. But filing a Schedule C undoubtedly increases your audit chances.
  • Prepare your tax return by computer. A neat, computer-prepared returned looks more official to IRS classifiers and avoids math errors, which catch the IRS’s attention. Most professional tax preparers now use computers. There are also tax preparation programs, such as Intuit’s Turbo Tax, that you can use to prepare your own return.
  • Don’t use electronic filing or the IRS preprinted address label on your tax returned. These enable the IRS to get your return into the processing cycle, including the audit cycle, more quickly than otherwise would happen. Anything that slows down the IRS machine can’t be bad. On the flip side, using electronic filing or the label usually means that any refund will come faster. If you expect a refund but fear an audit, you’ll have to weigh the pros and cons.
  • Live in a low audit area. Your audit chances are radically different depending on where in the United States you live. For example, Nevada taxpayers are audited four times more than people in Wisconsin. While this is extreme, it might make sense if you have travel most of the time or have addresses in several areas. If you have flexibility in choosing your tax reporting address, choose the one with the lower audit rate. If you’re really interested in this, ask a tax professional or check the IRS website for audit statistics.
  • If you can, report less than $100.000 in total positive income from salaries, self-employment, and investment. These people have the lowest audit rate.
  • Don’t report less income than is shown on your W-2s, Form 1099s, and other third-party forms you receive. If one of them is incorrect, get the issuer to correct the form and reissue it.

Let me know if I can help. Please call me at 817-877-5995 or toll free at 800-651-0528.

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