Tips in Avoiding an IRS Audit
A tax audit is dreaded by many primarily because those who have experienced the process shared horror stories about their experience. The painful reality, however, is that no matter how horrible and outrageous these stories appear to be, many of them are factual. Individual tax payers and business entities can be audited at any time. But based on statistical data, roughly 1.5% of all tax returns in the United States are ever audited yearly. This is because there are a number of precautions that can be taken to lessen the chances of being audited.
The most important thing to take note is to report all of your income in detail, regardless of where you get it from. No matter if you are an employee, an independent contractor or a business owner, the IRS guidelines clearly state what is required to be reported in a tax return. The simple earnings such as tips also need to be declared in your tax return to avoid IRS problems.
Another great tip is to ensure that you have the proper documentation available. Employers, in general, are obliged to provide you a W-2 or a 1099 that reports the amount you earn from the previous year during the time spent working there. The numbers on your W-2 should always match what is on your tax return. Having to keep all the necessary documents is a great idea as it gives you the advantage of proving everything that you have written on your tax return.
You also want to make sure that you review your tax return for math errors. This type of errors is easily checked and will definitely be seen by the IRS. So take the time to check the computations on your tax return. Ensure that you have made the correct entries on the correct lines of the tax forms. The IRS assumes that a sloppy math computation means a sloppy filling out of the other areas in the tax return.
Most business owners and independent contractors commit the mistake of thinking that their home offices are used strictly for business. Because certain guidelines regarding home offices are outlined, simply claiming your house as a home office causes problems. For instance, you must not keep personal belongings in your home office and you must not conduct personal activities there. Also, make sure that you do not claim more than 20% of your home as a home office.
There are many known methods and tips that you can use to avoid being audited by the IRS. Although it may seem like the government is against you and you cannot adequately battle an audit, just remain composed and do not forget that there are certain steps you can take to protect yourself. After all, you absolutely do not want to turn a small IRS problem into a big one.
Filed under Blog by on Oct 30th, 2009. 