Nothing will set your nerves on edge like being notified of a tax return audit. As a taxpayer, you should do your best to stay under the radar of the IRS.
Although there is a 0.52% likelihood of being audited, it’s imperative to remain compliant. You never know when the IRS agents will be knocking at your door. Below are a few legit ways to help you avoid audit triggers.
1. Hire a Qualified Tax Pro
Never assume that all tax preparers will do a perfect job when filing returns. Some are only there to steal from you while others might break the law trying to reduce your taxes.
To avoid a tax audit, you must be vigilant when hiring a tax preparer. There is no point of using your money on an amateur who will lead you to problems. Do not be afraid to seek the services of qualified tax professionals.
Despite being a bit expensive, they will probably save you from hefty fines. Moreover, they have a lot of experience and knowledge of how to prepare tax returns. It’s even better to use an IRS enrolled agent because they know how to avoid tax audits.
2. Understand If You Are a Likely Target
It is known that the IRS tends to focus its energy in small businesses, international and wealthy clients. People in these categories are known to be traditionally noncompliant.
Although there is a higher chance of being audited, you can avoid it by completing your returns every year. You have to be confident that everything you submit is correct. This way, you won’t be at loggerheads with the IRS.
3. Report All Your Income
Most people are always tempted to omit the income they earn from side hustles. It might seem like a good idea but you are just cooking your goose.
In case you didn’t know, the IRS has access to most if not all of your information. Of course, this includes your foreign bank accounts, K1 income, alimony and copies of your w-2 and Form 1099.
Besides, the IRS compares your income every year. They will definitely raise a red flag when they notice any weird discrepancies. To be on the safe side, report all your income on your return.
4. Avoid Data Entry Errors
As you know, data entry is always prone to errors. Unfortunately, errors are not allowed when it comes to tax returns. Audits are even triggered by minor issues such as misspellings or incorrect numbers.
You can avoid such simple mistakes by filing electronically. E-filing eliminates the probability of errors by allowing you to load your information directly from your W-2 and other tax returns. Besides, you can make use of e-filing calculators to avoid making math errors.
All in all, there is no harm in counterchecking everything you used to file your tax.
5. Submit Supporting Documents to Avoid Tax Return Audit
Sometimes you will have a feeling that your return is missing something. Such inconsistencies are more likely to raise an audit flag.
Before you get yourself into trouble, accompany your file with any paperwork that can help in explaining the discrepancies. Some of these documents might include receipts, worksheets, copies of checks, etc. You need to know more about IRS audits in case the system triggers an audit in such a scenario.
6. Avoid Leaving Empty Spaces
It is clear that minor things are more likely to get you on the IRS radar than anything else. In case you didn’t know, the DIF system might flag you simply because of blank spaces.
It is much better if you answer every question. You can simply use a dash, zero, or not applicable (N/A) instead of assuming that IRS knows what you mean.
7. Be Honest
Although the chances of an audit are negligible, it’s always good to be truthful. This will save you the stress of trying to substantiate any claims to the IRS agents. In most cases, they will always question your business expenses, home office deductions, charitable deductions, and other expenses.
The IRS might raise red flags if they feel that your expenses are out of proportion to your income. Don’t be tempted to inflate your donations because you’ll be required to explain. Always make sure you have the receipts for all the large expenses incurred.
8. Don’t Fail to File a Return
Failure to file a return will definitely have the IRS contact and question you. It is always good to file a tax return even if you didn’t earn anything during the tax year. You just have to explain the reason for filing zero returns and you’ll be good to go.
9. File Your Returns on Time
There is absolutely no reason why you should be late to file your returns. In any case, it might increase your chances of a tax audit.
You need to know the best time to file taxes to avoid an audit. You are expected to pay your taxes by the 15th of April. Failure to do this will lead to penalties or audits as well.
10. Be Exact and Neat
Before you submit your tax returns, make sure that the figures are not rounded off. Moreover, you should use clear handwriting to give the agents an easy time when reviewing your documents.
Should You Still Be Worried About a Tax Return Audit?
Even though the chances of a tax return audit are low, you might encounter one or two audits in your lifetime. Despite all your efforts, there are a few features that might increase the chances of an audit.
Surprisingly, the IRS can decide to conduct audits at random and you might find yourself on their radar.
Honestly, there is nothing to worry about if you are sure that everything is in line.
Having the right documents and providing the correct information will get you out of trouble during an audit. Besides, most audits are mostly conducted via mail. At least, you won’t have to engage in a one on one interview with an IRS agent.
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