No one wants to get audited by the IRS, but unfortunately, it happens to some people every year. There are a few things you can do to reduce your chances of being audited. We’ll discuss the essential tips for avoiding an IRS tax audit. If you follow these tips and seek advice from reputable tax consultants, you’ll be well on your way to avoiding an audit.
What’s the Best Way to Avoid an IRS Tax Audit?
Seek Advice From Tax Consultants
The first way to avoid a tax audit is to seek advice from an experienced tax professional. They can help you determine your risks and take actions that will reduce your chances of getting audited. Their long experience has helped them to understand who is most at risk for audit, and their gut instincts can guide you through the right steps to stay under the radar.
However, be careful with which tax preparer you choose. Not all tax preparers are created equal. Some may make mistakes on your return that could trigger an audit. Be sure to select a reputable preparer who is well-versed and experienced in tax preparation.
Keep Good Records of All Business Transactions, Including Receipts and Invoices
The second way to avoid a tax audit is to report all of your income. The IRS cross-checks income reported on tax returns with information from employers and other institutions. Be sure to report interest, dividends, and capital gains, too.
In addition, if you have a business, keep good records of all your transactions, including receipts and invoices. The IRS may audit businesses more often than individuals, so it’s important to have all your paperwork in order. This way, you can prove that all of your transactions were legitimate business expenses.
Have a Good Understanding of the Tax Law
Educating yourself is another good way to start. Know what is taxable and what isn’t. This will help you avoid making any mistakes on your tax return that could trigger an audit. The more you know about the law, the better equipped you’ll be to stay away from audits. If you find tax laws overwhelming, seek help and guidance from tax consultants!
For instance, did you know you can claim a home office deduction if you use part of your home exclusively and regularly for business? Many people don’t realize this and end up getting audited because they claimed home office deductions for the wrong reasons. In addition, did you know you can’t deduct your personal expenses on your business tax return? Understand the rules on deductions to ensure you’re staying in your lane.
Be Aware of Common Mistakes That Can Trigger an Audit
There are many common mistakes that taxpayers make that can trigger an audit. Filing your tax return on paper instead of electronically is one example. Another is claiming too many deductions or credits. Be sure to claim only the deductions and credits you are entitled to. Overestimating your income can also trigger an audit. If the IRS believes that you are underreporting your income, they may audit you. So it’s important to be realistic.
And finally, one of the most common ways to get audited is to have inconsistent information on your tax return. This could be caused by simple errors, such as entering the wrong Social Security number or forgetting to report a dividend. So be sure to check your return for any inconsistencies before filing.
File Your Taxes on Time
One of the easiest ways to avoid a tax audit is to file your taxes on time! Don’t wait until April 15th to file your taxes.mIf you’re late, the IRS may flag your return for a review. In addition, you may have to pay hefty penalties if you file late. Fines as high as 20% of the amount you owe could be levied.
If you believe you need an extension, just file for an extension. The paperwork required is minimal, it will give you peace of mind, and most importantly, you’ll have more time to file your return. Note that it doesn’t mean you get to avoid filing altogether. An extension simply gives you more time to submit your return, not more time to pay any taxes you may owe.
Be Honest on Your Tax Return
If you fudge the numbers, it’s only a matter of time before you’re caught. Therefore, it’s important to be honest on your tax return. Don’t try to hide any income or expenses. The IRS has sophisticated methods of detecting fraud. If they think something looks fishy on your turn, they will investigate.
Don’t Take Too Many Deductions
Be aware of the limitations. The IRS scrutinizes taxpayers who take the standard deduction rather than itemizing. Commonly audited items include charitable contributions, business expenses, and home office deductions, so be sure to take only the deductions you are entitled to. And if you’re not sure if a deduction is allowed, it’s best to consult with tax consultants.
Don’t Be Greedy
If you make too much money, you’re more likely to get audited. It’s just the way it works. Don’t try to skirt the rules to pay fewer taxes. The IRS is onto those tricks! In addition, if you realize you made a mistake on your tax return after you’ve already filed it, don’t panic. You can file an amended return to correct the error. This will help to reduce your chances of getting audited.
Remember That an Audit Is Not the End of the World
If you end up getting audited, remember it’s just a process the IRS uses to make sure taxpayers are paying the correct amount of taxes. You don’t need to panic, especially if you followed the rest of the advice here. An audit is not the end of the world. It’s just a way for the IRS to ensure that you’re following the tax laws.
One of the best strategies is to be aware of the common triggers and take steps to avoid them. Filing your taxes on time, being honest on your return, and taking the standard deduction are all good ways to avoid an audit. However, some people will get audited anyway. Keeping good records and proving each aspect of your tax return will get you through it.
When it comes to avoiding an IRS tax audit, seeking advice from a tax professional is your best bet. They can help you determine your risk level and give you tips on how to reduce that risk. Need help avoiding an audit? Contact Geaux Tax Resolution today to seek help for your tax questions! We are led by a former IRS employee and have over 35 years of experience dealing with the IRS. We’d love to help you today!