Audits aren’t fun. No one looks forward to getting that letter from the IRS because too often such unwelcome correspondence usually means one thing: you owe them money. While the odds of getting audited are fairly low, once the IRS singles you out there is very little you can do to avoid it. There are, however, steps you can take beforehand to decrease your chances of being chosen for that extra attention in the first place.
Report all of your income
Perhaps the surest way to invite an audit from the IRS is to not report all of your income. No matter how briefly you held a job or how small the income was, income from almost any source is taxable, so make sure you track down of your W-2’s and 1099’s. Though you may think these details seem insignificant, the IRS uses matching software to catch any discrepancies between the income reported under your Social Security number and the income you listed on your tax return. So when it comes to reporting your income, honesty really is the best policy.
Take Your Time
Don’t rush through doing your taxes. Filing on your own is difficult enough, but completing your returns hastily increases your chances of making mistakes. And the more mistakes you make, the more the IRS’s focus will shift towards you. Double-check your numbers to make sure you math is accurate, and even look back over the simple things, like how you entered your personal information, to keep the IRS at bay.
Earn Less
If you do not want to be noticed by the IRS, blend in with the largest group of earners. That group earns less than $200,000 but more than the lowest earners. Like it was mentioned above, those who report the least, as well as the and highest earners who take the most deductions and contribute to charities and other sources, get the lion’s share of the IRS’s attention.
It might not be worth taking a pay cut to reduce your chance of an audit, but the more you make, the more you should be prepared.
Keep a Low Profile
The IRS is adept at scouring public records such as employment documents for confirmation on taxpayers whereabouts and their financial situations. Recently, they have taken to using social media to help them reach this end, especially when it comes to uncovering taxpayer fraud. Though the IRS claims they only make audit decisions based on information submitted on the tax return, details revealed through business websites are fair game. Therefore, if you tell the IRS on your return that you are struggling financially and want to keep the IRS away, do not tweet “#businessisbooming!”
Make Realistic Deductions
The more unrealistic your deductions, the more the IRS is going to question it. For years taxpayers abused deductions like having a home office which has caused the IRS to become extra sensitive to them. Deductions are there for a reason, and you should take the deductions you are entitled to. So if you work from a home office, confidently claim so. But if you are simply blogging from laptop while reclining on a futon in the guest bedroom and still claim home office deductions, do not be surprised if the IRS wants to know more about it.
There is no fool-proof way to keep the IRS from auditing you, and if you get picked even after following these steps, don’t worry. Staying organized and having your statements in order will back you up to the IRS’s satisfaction, keeping your money where it belongs: with you.
If you need help getting your finances organized, contact us to schedule an appointment today