How Do You Avoid an IRS Audit?

A tax audit is dreaded by many primarily because those who have experienced the process have horror stories about their experience. The painful reality is although several of these stories are sound horrible and outrageous, some of them are true. Individual tax payers and business entities can be audited at any time. Statistics report, however, that only approximately 1.5% of all tax returns in the United States are ever made to undergo this process annually. This is because there are several precautions that can be taken to reduce the chances of being audited.

First, make sure you declare all of your income. The government requires that taxpayers report all of their income in detail, no matter what source you received it from. The rules, as published by the IRS, clearly indicate what has to be reported on your tax return, whether you are an independent contractor or an employee. To avoid an IRS problem, any cash or tips made must also be declared and included in your tax return.

Another good tip in avoiding an IRS audit is ensuring that you have the pertinent documents available to be able to prove everything that you have written, should it be necessary. The W-2 or the 1099, which is provided by your employer and which reports the amount you have earned in the previous year while employed in that particular company, is among the examples of these documents. Recheck as well that the numbers in your W-2 are the same as the entries on your tax return.

You also want to make certain that you review your tax return for math errors. This type of errors is easily checked and will definitely be pointed out by the IRS. Hence, make time to recheck for errors in your forms. 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. Simply claiming a home office to be eligible for applicable tax deductions brings your tax return to the attention of the IRS as certain guidelines regarding this matter are outlined. For instance, you must not keep personal possessions 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.

Though it may seem that the government is against you and you cannot adequately battle an audit, certain precautions are available to avoid one. Another important thing to take note is to remain composed and keep in mind that there are precautions you can take to protect yourself. After all, no one wants to turn a small glitch in the tax return into a big IRS issue.

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