There’s no 100 percent way to avoid an Internal Revenue Service (IRS) tax audit. That’s because a small percentage of them are random. But for the targeted ones, you can ensure you’re not on the hit list. It takes some forethought and organization.
1) Ensure Forms Match
Form matching is a big deal with the IRS. For example, they will compare third-party information with your forms. These include W-2s and Form 1099s.If you have a side hustle, the third party will report it. Ensure you have all the paperwork and that you declare it properly. A third party is required to report and provide a Form 1099 for all income over $600.
2) Double Check Numbers
It starts with your Social Security number (SSN). Ensure that you have it correct; typos happen. A wrong SSN draws the IRS spotlight to you. Know your children’s SSNs, too.Don’t estimate or make up numbers. These can stick out, especially if you round numbers up to the next dollar.
Instead of $500 on office supplies, it should be $496. Keep your receipts so you'll know the exact number. A succession of rounded numbers will increase the chances of an audit.
3) Communicate With College-Age Children
First-time filers may still be in college. But they need to contact their parents to ensure that mom and dad don’t already list them as dependents.4) Avoid Big Changes
The IRS looks for data patterns outside the norm so try to be consistent with your information from year to year.A sudden loss in income that can’t be explained, could raise eyebrows. Look at the prior years’ returns and compare numbers.
5) Always Sign the Return
Signing a return may seem obvious, but it often is overlooked in the rush to file. Failing to sign may make the IRS want to take a closer look to se what else has been overlooked.6) Avoid Amending Returns
Sending an amended return doesn’t automatically trigger an audit. But if you have substantial changes without justification, your chances of an IRS audit may increase.So always attach documents that support your return’s changes. But only send what’s necessary. Unnecessary documents could overwhelm the IRS and lead to an audit.
7) Making Too Much or Too Little
If you make too little money or too much money, the IRS will take notice.For example, if you’re not declaring enough taxable income to support yourself, the IRS is going to have questions. Conversely, if you make too much money, the IRS will also take a look.
8) Businesses With Losses
It can be challenging to turn a profit. All businesses have their ups and downs. This is especially true with new companies.9) Excessive Mileage Deductions
Excessive mileage deductions catch a lot of taxpayers. The IRS knows what standard mileage is for your profession. They will compare that with what you report.10) Separate Personal and Business Accounts
Don’t use your business as a “piggy bank.” Categorize monies going in and out of your business carefully. You don’t want the IRS classifying money taken out as a “taxable event.”11) Use a Qualified Tax Preparer
The tax code is difficult to follow and understand. Protect yourself by consulting with a tax professional. Do your research when selecting a tax preparer. Ask for references and check their credentials.Some scammers will steal your identity and your refund, so if someone is offering you cheap services for tax preparation, you should pass.
