11 Ways to Avoid an IRS Audit

11 Ways to Avoid an IRS Audit
Anne Johnson

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.

But how do you hedge your bets against having the IRS audit your tax returns? There are steps you can take. Here are 11 ways to keep the IRS at bay.

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.

If you’re missing a form, don’t just skip it. Contact the issuer and press to be sent the proper form. You also don’t want to leave questions blank. Fill out all of your forms.

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.

Once you’ve completed your return, go back and double-check your math.

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.
If the college student files and the parents file, there will be duplicates. This raises a red flag for the IRS. Both the college student and the parent may be hit with an audit.

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.

Remember, declaring a large charitable contribution that’s more than your taxable income will raise a red flag. You also don’t want to have sizable increases in expenses from year to year without an explanation.

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.
Check and recheck that your signature is there. If you’re filing jointly, ensure both signatures are on the return.

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.

But if you truly make a mistake on your return, it’s better to fix it voluntarily. Just don’t make it a habit.

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.

Taxpayers with incomes under $25,000 and over $500,000 have a higher-than-average rate of audits.

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.
But the IRS will turn an eye toward you if losses are substantial or claimed year after year. Businesses should make a profit in the long term. The IRS will want an explanation if you’re showing years of losses.

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.
If you’re deducting thousands of miles per year for business but don’t have an occupation that typically travels, the IRS will take notice. Even if you do travel, you’re not driving all day and all night. Keep that in mind when filling out that return.

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.”
If you have a large business, you might want to prepare an internal audit report on your business to ensure you’re deducting all your expenses and nothing more.

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.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
Anne Johnson was a commercial property & casualty insurance agent for nine years. She was also licensed in health and life insurance. Anne went on to own an advertising agency where she worked with businesses. She has been writing about personal finance for ten years.
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