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How to survive a tax audit

how to survive a tax audit

  8 Best Ways To Avoid Tax Audit

The IRS receives a great number of tax returns every year from individuals, married couples and businesses. Thinking about the sheer number of all the submitted applications you’d think that the chances of you being audited are slim. Well, in all honesty, you’re wrong. The IRS has been doing this for a while now, and they are rather good at what they do, they have system in place that works somewhat like a filter. A filter that triggers an alert when certain items are spotted, basically stuff that is inaccurate or falsified. We all make mistakes, and it’s natural to mess up a couple of times on your IRS forms. but there are certain things that you should pay particular attention to, and make sure that they are accurate, so as to steer clear of an audit.

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1:  Disproportionate Income Figures

You should know that the IRS has gone the extra mile to know what the average wage is for the job you have. And if your income figures do not tally with what other people in the same industry are making then the IRS will want to know why.

Best way to avoid this irs audit: Honesty is the best policy. Be honest with how much you really make or you will end up on the IRS radar every time you file returns.

2: Be careful with those Self-Employment Deductions

Being self-employed means you are allowed to work at home in your pajamas! But it also means that you are likely to be audited faster than others, which is mostly because you may claim deductions and business expenses that are not related to your self-employment.

Best way to avoid this tax audit :  Don’t ever mix personal expenses and business deductions.

3: Keep track of those Tips and Cash Earners

It is hard to keep records of tips and cash payments that have to be reported on your tax forms. Therefore the professions that accept cash and tips will more frequently be audited by the IRS .

Best way to avoid this tax audit :  The IRS agents tend to ask specific questions that will tell them when someone is hiding their true cash income. Answer truthfully and try to keep meticulous accounting records.

4: That sweet Home Office Deduction

The home office deduction is

another red flag to the IRS because they have stringent guidelines on what qualifies as a home office. People like to include their entire home for the deduction.

Best way to avoid this audit . Your home office must be exclusively used for business purposes and not for other activities. Read IRS Publication 587 to ensure you qualify for the home office deduction, according to the IRS.

5: Business Losses For Self-Employed or Sole Proprietor Tax Payers

Business losses for the first one or two years are common when you are self-employed or a sole proprietor. But if you are still claiming losses 3 years later after being in business for 5 years, the IRS will begin to wonder if you really own a business or if you are just writing off a hobby to get more deductions .

Best way to avoid this tax audit :  Have all your business documentation so you can prove that you made a profit.

6: Making An Income of $200k or Higher

It is just a fact of life that the more money you make, the more likely you will be audited by the IRS. People will make more mistakes or underreport the amount they made on tricky tax returns when they are in higher income brackets. Also, the IRS will get a higher payoff when auditing these tax returns .

Best way to avoid this tax audit:  Ensure that you report all income and have the forms to back it up. Also, use the right tax forms and fill in all applicable fields.

7: Failing to Report All Taxable Income

It is easy to misplace a decimal point or add an extra number to throw off all your income figures. Yet if your tax returns don’t match the W-2 form or 1099 form sent to the IRS by your employer, the IRS will audit you, according to CBS News.

Best way to avoid this tax audit :  If there is an error on your W-2 or 1099, have the employer send the IRS the corrected information.

8: Taking Higher-than-Average Deductions

It is easy to try to claim as many deductions as you can to get a bigger tax refund. But if the deductions are too large in comparison to the amount you earn (such as claiming $17,000 in expenses but only reporting $23,000 in gross income) an audit will happen.

Best way to avoid this audit :  If you can claim the deduction and have the documents to back it up, then put it on the return. Don’t take a deduction that you can’t prove.

Category: Taxes

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