One of many concerns you have while filing your tax return is raising a red flag to the IRS to be audited. You can’t 100 percent protect yourself from an audit because sometimes it’s just the luck of the draw, but you can lower your odds of being audited by following the provided tips below.
1. Understand the selection process
Like mentioned above, sometimes it’s just the luck of the draw that you’ve been selected for an audit, but in most cases the IRS flags potential audits by using the Discriminate Income Function(DIF). DIF is a computer program that compares your deductions with other individuals that have taken the same deductions in your tax bracket. This doesn’t mean that you should be hesitant of taking any deductions your eligible to take.It just means that you need to be sure you’re entitled to take the deductions and have documentation to back them up.
2. If you have a bulls eye on your back
Individuals who are more likely to be audited are those that are in a cash business like waitresses, bartenders and hairdressers.Also, if you are one who keeps your own books like doctors lawyers or accountants, you are more likely to be audited. Make sure you’re careful with the deductions that you take, and steer clear of miscellaneous deductions.
3. Incorporate an LLC if you’re self-employed
Being self employed and filing a Schedule C can also raise your chances of an audit. If you’re self-employed, it might be wise to consider incorporating or forming a limited liability company (LLC). Corporation and LLCs tend to be audited less frequently than other small businesses and allow for more deductions.
4. Report all taxable income
Make sure that you’re accurate and honest with the amount of income you report to the IRS. The IRS gets a copy of all of your W-2s and 1099s, so make sure that your numbers match the numbers that are on your form from your employer. The IRS’ system can easily detect if the income you entered is different than what your employer submitted.
5. Include additional documents & explanations
If you find yourself thinking that your return has a good chance of triggering a red flag for an audit make sure that you include extra forms, worksheets, receipts, etc. By allowing this additional information you can explain any inconsistencies from previous years’ tax returns. You may still be flagged by the IRS’ DIF system, but a human auditor will be able to review your additional documents and explanations to see that your deductions are accurate and does not require an audit.
6. File correctly the first time
Make sure you do your best to file your tax return correctly the first time. Filing an emended tax return prevents your return from flying below the radar, which should be your main goal. Filing an emended tax return can bring your original tax return under a magnifying glass and could raise a red flag for an audit.
7. Avoid round numbers
A major red flag for the IRS is when individual file their return with round numbers when dealing with deductions. Be accurate and keep receipts to provide for additional documentation.
8. Leave nothing blank
Make sure you answer every question and fill in every space, even if it’s with a zero. Don’t leave the IRS any room to assume anything and that you’ve left it blank as a deception.
9. Double check your math
Just like in grade school, you can benefit from checking your math. Luckily, unlike in grade school, you can use a calculator to make sure that everything is accurate and adds up. Again, it is important to make sure that your numbers match the numbers on your W-2 and 1099 forms. This also included the amount of deductions you’ve taken and adjusted gross income limitations such as medical expenses. ClickHere to see if you can deduct your medical and dental expenses.
10. Avoid duplicate claims
There are many cases of children over the age of 18 being confused about the best way to file or have already filed and have received a letter from the IRS because of a duplicate claim. In many cases this happens because a parent claims their child as a dependent, and that child also tried to claim themselves as an independent. When this happens, this creates issues and can result in both tax returns being pulled by the IRS. This can easily be avoided by making sure there is communication between parents and children over the age of 18.
No matter how many preventative measures you take, there is no way to fully guarantee you won’t be audited by the IRS. The tips provided above are there to lessen your chances of being audited, as well as make sure that your records are organized in the instance you have been selected. In the instance you’ve been selected for an audit and are facing tax problems, don’t panic and reach out to your local CPA for assistance.
By Paige Knight
