Tax Audit: Practical Tips For Avoiding an IRS Audit
If you are self-employed, for example, you have a much higher risk of being the target of an audit. It is a good idea to incorporate. The IRS will be much less likely to audit the return of a Corporate entity. Another good idea is to take the full extension. The last date for filing an extended return is October 15. The IRS will usually have filled its quota of returns selected for audit by then. If you do follow this tip, make sure that you have paid any taxes due by the April 15th deadline to avoid any penalties or interest charges.
There are several things that you can do on your return itself that will make you a less likely audit candidate. Make sure that all of your tax information is accurate, and that your return is completely filled out. It is important to make sure that the return is neat and that whole numbers that appear rounded off are avoided. Even when you file your taxes online by using the free e-file services, you should be prepared to send detailed explanations about any item that might appear even slightly unusual or represents a drastic change of income or expenses from previous returns.
The IRS uses a computer generated system for selecting potential audit returns. The returns that are red flagged by the computer are reviewed by an agent who has been trained to recognize the potential for extra tax income. The agent will be looking for unreported income or drastic changes in income from previous years. They will be looking for extremely high deductions in the areas of charitable contributions and such business deductions as automobile expenses. The important thing and the best audit tip is to keep accurate records of all your financial affairs. Not only do good records make tax preparation easier, but they also will make a potential audit less threatening.
In conclusion, there are ways to make an audit less likely, but an audit need not worry the honest and careful tax payer. There are some cases where an audit actually results in a larger refund. Just make sure your tax information is accurate and your return is honest and complete, and you should have nothing to fear.