Source: The Motley Fool.
The phrase "IRS audit" strikes fear into the hearts of
taxpayers everywhere. The last thing anyone wants is to be
audited, but fortunately, there are simple things you can do to
avoid an audit. Follow these four steps to put luck on your side
and reduce the chance of being audited.
1. Check your work
One of the easiest ways to
avoid an audit
avoid an audit on your tax return is to make sure that all the
information you enter is correct. The IRS has a sophisticated
computer system that can compare the information you enter with
the data reported by your employers. This means that an erroneous
figure can put your return in the audit pile. How can you be
extra careful? Try waiting to do your taxes until you get all of
your tax information for the year. When you stagger your work,
you may make more mistakes. Using e-filing software can help
mitigate these problems, as the software will run a final check
to look for discrepancies. Finally, don't send your return off
until you have double-checked your work. Taking one last look at
your return could help you avoid errors .
2. Make reasonable deductions
IRS analysts are trained to scrutinize deductions. They know what
deductions are most common and which are most likely to be
abused. A favored end-of-the-year tactic for many is to make
charitable donations. While donating to charitable organizations
is admirable, excessive donations can be a red flag, because the
IRS knows what donation amounts are reasonable for certain income
levels. Deductions for work expenses are also something that the
IRS keeps an eye on. Be sure that if you deduct expenses for a
home office or vehicle, you truly are using said office or car
solely for business. The IRS takes extra care in assessing these
types of deductions .
3. Be honest
Misrepresenting your income or deductions will certainly land you
in audit territory. Because employers are required to report what
they paid you, it is fairly simple for the IRS to determine
whether you have faithfully reported all your income. Include all
accounts, including foreign bank accounts, in your tax return.
Don't try to tell the IRS that your video-gaming room is a home
office that you use only for business
4. Use tax software
. It might sound frivolous, but letting tax software do the heavy
lifting for you typically results in a more complete and accurate
tax return. Tax software automatically calculates your return,
reducing the possibility of mistakes. It also knows which
deductions or credits you can claim together, so you won't end up
trying to claim competing options. Tax software guides you
through the return process so that you can make the best choices
without making mistakes .
Bonus: Be average
For most people, audits are a remote possibility, as the IRS only
audits about 1% of returns. However, taxpayers at either extreme
of the income spectrum are more likely to be audited. In 2013,
10.9% percent of audits were selected from taxpayers with incomes
of more than $1 million. Returns with incomes between $200,000
and $1,000,000 are about three times more likely to be audited
than average. Because the IRS closely examines errors related to
the Earned Income Tax Credit, people with lower incomes are also
more likely to be audited .
Of course, there's not much you can do about this one before
April 15. However, if your income puts you at a higher risk of
being audited, consider taking extra care when filing your
Keep more of your money
Tax increases that took effect at the beginning of 2013
affected nearly every American taxpayer. But with the right
planning, you can take steps to take control of your taxes and
potentially even lower your tax bill. In our brand-new special
How You Can Fight Back Against Higher Taxes
How You Can Fight Back Against Higher Taxes," the Motley Fool's
tax experts run through what to watch out for in doing your tax
planning this year. With its concrete advice on how to cut
taxes for decades to come, you won't want to miss out.
Click here to get your copy today -- it's absolutely free.
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