6 Ways to Reduce Your Chance of an IRS Audit
Audits are on the rise. Although there is no guaranteed way to prevent an audit, following these six tips will help you reduce your chance of being audited and all the stress and costs associated with one.
Beware of your deductions
The IRS computer system may flag your tax return if your “deduction to income” ratio is unusually high. Individual and business taxpayers should only claim valid deductions on their return and use extra caution to avoid “double-dipping” by claiming a deduction or credit twice on the same return.
Claim proper exemptions
Ensure your personal exemptions are correctly calculated and claimed on your tax return. For more information on exemptions, see IRS Publication 501. Ensure all of your tax filings reconcile. This includes all tax returns, documents, and other tax-related records sent to the IRS, Social Security Administration, and your state. If you’re an employee, ensure your Form 1040 matches the Form W2 filed by your employer with the aforementioned Agencies. If you’re a business, all quarterly filings should reconcile perfectly with your annual tax return.
File on time
Filing late, or worse, filing multiple tax returns late, may trigger an IRS tax audit. High-income taxpayers who file multiple tax returns at the same time may set themselves up for review. As a matter of fact, the IRS makes it easy to timely file your tax return using e-filing.
If you’re unsure if the IRS will understand your claimed exemptions, deductions, or expenses, provide the agency with documentation to substantiate your claims, such as receipts, copies of canceled checks, or a letter of explanation. A licensed tax preparer will know when additional substantiation is warranted.
Stay in compliance.
The chance of a tax audit due to random selection is very slim (less than 1%). The best way to reduce your chance of an audit is to maintain compliance with your tax obligations, such as tax withholding and filing. Want to learn more about protecting yourself (and your assets) from the IRS? Meanwhile, Get FREE help and prepare for this tax season!