Helpful Tips for Avoiding a Tax Audit
Each tax season there are a number of taxpayers who are subject to an audit by the IRS. There are some individuals who are randomly audited by the IRS; however, the majority of audits are requested for a specific reason. Having your personal finances or businesses audited by the IRS is a process that many individuals try to avoid and there are a number of fairly easy precautions that should be taken to avoid a potential audit.
It has recently been estimated that the number of random audits performed by the IRS is on the decline; however, requested audits are actually on the rise. There are several reasons why the IRS can request an audit. An audit request is often made when a tax return contains information that raises a red flag to the officials at the IRS.
Self-employed individuals or business owners are often the largest category of taxpayers who are audited by the IRS. You may have seen the constant media attention that has been given to corporate companies who have hidden their profits from the IRS. The truth is just about any individual or business owner can inflate or deflate their profits and even list nonexistent tax deductions. Since untruthful information can easily be reported and commonly is, the IRS uses tax audits to reduce the number of individuals or business owners who are reporting inaccurate information on their taxes for their own benefit.
For self-employed individuals or business owners there are a few important steps that should be taken to reduce the likelihood of being audited by the IRS. A home office is a deduction that is allowed on taxes; however, it is common for an audit to be requested on an individual who claims to have a home office. Self-employed individuals or small business owners need to make sure that each and every item that they are claiming as home office equipment is actually used for the business and only the business.
Another reason why an audit may be requested by the IRS is because an extraordinarily large number of tax deductions were reported. All individuals or business owners should keep detailed records and proper documentation for each tax deduction that is being claimed. It is possible for an individual to claim a large number of legitimate tax deductions; however, taxpayers should be prepared to account for them all should an audit occur.
It is also possible for the IRS to request an audit on a taxpayer for making an honest mistake. Most mathematical errors are caught and fixed by the tax processing system; however, a large mathematical error may make it look like a taxpayer was trying to avoid paying taxes. Providing the wrong personal information, including social security numbers and contact information, could cause the IRS to look more closely at a tax return. The best way to prevent an audit that may result from a simple and honest mistake is to double check and recalculate all of the important information that is required on a tax form.
The most important step that should be taken to prevent an audit is for a taxpayer to report their full income earned. Although it may seem simple enough, there are a large individuals who falsely record the amount of income they have received for the year. Whether it is on purpose or by accident there are number of red flags that the IRS notices when reviewing an individual or business tax return. Providing the correct information on a tax return will not only reduce the likelihood of an audit, but it will prevent a taxpayer from being fined or facing the possibility of jail if their taxes are audited.
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