There is often nothing more annoying, stressful, and downright upsetting than finding out you have been selected for an audit. The questions that come around are almost impossible to answer and the entire process is intimidating and never pleasant.
The good news is that there are ways to cut down on how often you may be selected for an audit. Let’s get right down to it. Here are 4 tips that you can use to try and avoid audits altogether in the future.
Audit Avoiding Tip #1- Like Santa Claus, Check Your List Twice
While it is important to go over the numbers a few times and check your calculations, very few audits actually come from math mishaps on their own. The IRS automatically corrects errors so it is more important to actually look over and analyze your deductions, rather than call your math skills into question. A common error that people make is claiming their entire medical expenses for the year as a deduction.
The truth is that you can usually only claim medical expenses that exceed 7.5% of your gross income. That being said, be sure to check over your entire return carefully as a sloppy and incorrect return can often force the IRS to pursue a full audit. You do not need to give them any reason to analyze your return any closer than they have to.
Audit Avoiding Tip #2-Don’t Stand Out
There are certain situations and rules that can make you stand out in the eyes of the IRS. If you are self employed you have a much higher risk of being audited as you have a lot more opportunity to create or provide false information. Keep your personal and business expenses separate and be prepared to substantiate your expenses.
Those who are paid in cash are also much more likely to be audited. In fact the IRS has different rules and auditing methods that relate to people with different occupations. If you work in the hospitality industry you are probably a prime target for an audit. The more potential you have to earn extra income the more likely it is that the IRS will review your return.
This extra review often means they will find extra tax dollars that need to come out of your pocket. The best thing you can do if you earn income in cash or are self employed is try and make your return look as ordinary as possible. Don’t use the opportunity to claim everything as a business expense and don’t try to pocket and hide all the extra cash you earn on the side.
Audit Avoiding Tip #3- File at the Right Time
There are a lot of benefits that can come from preparing your tax return early on in the year. This way you can decide when it may be appropriate to file. If you notice that you may have a big refund coming your way, have nothing to hide, and have no fear of an audit, then you will benefit from filing long before the deadline. If you owe and have taxes due, then hold off and don’t pay until April 15th.
There is never any incentive to pay a tax bill early. There is no reward for paying early and no punishment for waiting until the last minute. It is best to think of it as an interest-free loan. If you feel you may be in line for an audit, wait until the last minute as well. It is far more likely that your return will be overlooked if you file right on or just before April 15th.
Audit Avoiding Tip #4-Plan Ahead and Cover Yourself
Pre-audit strategies are an excellent way to avoid an audit altogether. If you have a major deduction coming, then attach a receipt or copy of your bills to your return, before you are asked to provide proof. If you seem willing to back up your claim beforehand, the IRS will sometimes not look into the matter any further.
If you are making a claim for a large donation to a charity or another expense, attach a copy of the receipt or checks. While the computers will still flag your return, the actual reviewer will notice the extra effort you took and your understanding of the rules. While your return may still be looked over, it can reduce your chances of a full audit.
While these audit avoiding tips will not work every time, or work for everyone, they can reduce your chances of a full audit in many cases. Plan ahead and avoid an audit beforehand and you will be able to save yourself a lot of time and money in the long run. Cover yourself, substantiate, and provide proof of your claims before you are asked to. A little extra work on your part will go along way towards the IRS passing you by.