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Best Ways to Avoid a Tax Audit

With the new year underway, many people are looking to receive their W-2 or 1099 forms to reveal their income for the past year. Therefore, tax season is approaching and many people need to prepare to file their tax returns. When filing tax returns, most people expect to receive a tax refund which is a lump sum of money given back to them. As well as receiving refunds, there is also a possibility that one may get audited by the IRS. An audit is when the IRS wants to examine your tax return and make sure that it is properly completed. While the overwhelming majority of taxpayers don’t get audited, there are some that do.

To limit your chances of getting audited, there are a number of things that you can do. These include checking your returns, being honest, and using necessary deductions. It will also be important to file your return on time at the end of tax season. These things will help you avoid getting audited by the IRS.

Check Your Returns

The first thing you will need to do in order to avoid getting an IRS audit is to check your returns. It will be important to go over every form you fill out and make sure that they are filled out properly. You will want to evaluate each form and make sure that you have all of the correct and accurate information on each line. This will be a vital first step in the process of checking your returns.

When checking your tax returns, you will want to use software so that you can more efficiently enter the correct information. Software speeds up the process and allows you to fill out a tax return more accurately. Tax software programs simplify the process of getting tax returns filled out and filed. They will also check all of your forms to make sure that they have been filled out accurately.

If you are looking to check your tax returns, you may want to get help from tax professionals. These include certified public accountants and enrolled agents. These professionals are authorized by the state and the IRS to file and prepare tax returns for you. They have an in depth knowledge of the tax laws and will help look over your returns to make sure that they are accurate. With their expertise, you will be in better position to prepare your tax return accurately and avoid an audit.

Checking your tax returns is one of the best ways to avoid getting audited. It will help prevent you from entering information inaccurately and thus triggering an audit. You can check your returns yourself which is the most convenient way to do this task. However, you can also use tax software or consult with a tax professional in order to ensure that your tax returns are properly completed.

Be Honest

Another way to avoid an audit is to be honest. It will always be in your best interest to tell the truth on all of your tax returns. Taxpayers will need to reveal all of their income, all of their allowable deductions and also provide supporting documentation. This will ensure that they provide a tax return that is accurate and truthful. One of the reasons why tax returns are audited is because the IRS will get suspicious if there are any abnormal or irregular deductions that of above normal amounts. There are some taxpayers that may even hide income. This can be a problem for taxpayers when it comes to audits. Therefore, taxpayers who are looking to avoid an audit will want to always use honesty when filing and submitting a tax return.

Avoid Filing Complex Tax Returns

When looking to avoid an IRS audit, taxpayers will need to avoid filing complex tax return deductions. These are deductions that are uncommon among average taxpayers. While they are legal, an excess of these deductions can result in an audit. Those who make charitable donations, file schedule C returns and who make capital gains will be the most likely to get audited.

One of the most common red flags for audits is claiming charitable donations as a deduction. Many taxpayers donate to charitable causes and this is often allowed. However, there are some taxpayers who make charitable donations that can be excessive. They also make these charity donation claims without any supporting documentation. As a result, they are likely to get audited. When claiming charitable donations, it will be very important to have supporting documentation proving that you made the amount of donations that you claim. This will prevent a tax audit as well as potential criminal charges for fraud.

Another type of return that is complex and often gets audited is a Schedule C. This type of return is one that you fill out when you are self employed or own a small business as a sole proprietor. Since there are a number things that you can deduct, you can also get on the IRS radar for an audit. The best way to avoid an audit is to claim business deductions that are ordinary and necessary for your type of business. It will also be vital to have supporting documentation so that you can back up the deduction claims you make.

Capital gains are another thing on a tax return that can result in an audit. A capital gain is a sum of money you receive when you sell an asset such as a stock or a real estate property. Since capital gains transactions can be quite complex, it will be important to fill out the necessary forms properly. As long as you fill out capital gains tax forms properly and provide supporting documents, you will reduce your chances of being audited.

Other Ways to Avoid an Audit

When looking to avoid an IRS audit, there are a couple of other things that you can do. You can file your returns electronically as well as file your returns at the end of the tax season. These two things will help you lower your chances of getting audited.

The first thing you can do is file your returns electronically. When using this method, you will be in position to file your returns instantly and accurately. With an e file return, the IRS will get your returns and be able to process them quickly. As a result, they will assume that the return has been done properly and will therefore be less likely to reexamine the return.

Another good way to avoid a tax audit is to file your returns in mid April. While there may be a delay in your refund, it will help you avoid an audit. Most audited tax returns are ones that were filed at the very beginning or middle of the tax season. When returns are filed at these times, they are likely to give the IRS time to examine them and seek more information. By filing the returns in April, there will be less time for the IRS to go over a tax return and they will just process it without any second guessing.

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.