An audit is a strenuous process that you don’t want to deal with, especially if you’re not at par with your financial records. Tax audits can consume a lot of time and are very stressful. But IRS Audits are not things that happen every day, and they audit quite a small number of people.
However, when they decide to audit you, there is nothing you can do to stop it. So, the best action is to ensure you don’t do anything that can attract their attention in the first place. How do you avoid a tax audit? Here are 14 ways to take into account.
- Understand the Selection Process
So, what will make the tax auditors select your business for an audit? It’s not easy to understand this because the selection is random. But IRS uses Discriminate Income Function (DIF), a program for comparing your deductions with others in the same income bracket. Make sure you have documents that back up all your deductions.
- Be at Par with Your Figures
If you have an erroneous data entry, the chances are that you’re going to attract the IRS officials’ attention. You should always double-check your return and be careful with your taxes. Don’t forget about any forms concerning income when filing your taxes.
- Report Your Income
All income that you make you must report to IRS. Even if you don’t have W-2 or 1099 forms, make sure you report everything, including your trades, stocks, and cryptocurrency transactions. You should make sure you avoid any mistakes with your income to give the auditors a red flag.
- Don’t File Amendments to Your Return
Of course, everyone wants to fly below the radar, but amendments will mess you up big time. If you file an amendment return, you might also expose your original return to scrutiny. Be very careful when filing your returns to avoid mistakes that can call for an amendment.
- Be Honest
Being truthful with your tax returns will help you avoid any audits. Report your incomes, deductions, credits, and all your figures accurately. Ensure you’re confident enough to look at the auditor’s eye and support every number on your return. If you lie, you won’t even gather the courage to face the IRS guys.
- Invest in Passive Income Assets
It will help if you find a way to structure your income so that you don’t have to reveal your identity. That’s necessary if you’re not a US resident but have American-sourced income. You can do this by investing in passive income assets. This will mean that you won’t need to file a US tax return.
- Be at Par with Your Math
It doesn’t matter how sharp of a brain you are. You should always double-check your calculations and use a calculator e.g online bitcoin price calculator for the bitcoin price and the tax calculator for the tax calculations. Your numbers must match those in the forms your employers submit to the IRS. Pay attention to any deductions with adjusted gross income limitations. These include medical expenses.
- Consider E-filling
According to IRS, filing your taxes electronically helps avoid mistakes. Avoiding mistakes also means you’ll eliminate any odds of getting an audit. The paper filing has an error rate of 21%, while the electronic return filing has an error rate of 0.5%.
- Avoid Losses for Consecutive Years
If your business is recording losses year after year, chances are you’re going to get the tax auditors to pay attention to your business. You open a business to make money, and consecutive losses seem like a big joke. Avoid recording those losses unless you want to draw IRS attention.
- Understand When to File Your Returns
Tax experts recommend that you file your returns late to avoid audits. Others even recommend that you file for extensions because most returns are already selected for auditing. But make sure you pay all the taxes you owe so you don’t face penalties.
- Have Realistic Deductions
Any unrealistic deductions are likely to alert the auditors. One of those deductions likely to raise a red flag includes claiming charitable deductions for 40% of your total income. Take time to understand the tax deductions you qualify for so you don’t get in trouble.
- Remember Your Saving Accounts
Include anything that gets to the IRS’s records. Anything that shows up after you file your tax return can be an issue if you don’t account for it. You need to keep a record of all the documents you expect to receive at the end of the year. Look at your return for the previous year and record everything listed, so you don’t make mistakes with the new return.
- Be Consistent with Your Expenses
Your expenses need to be consistent and represent the revenue percentage. The auditors also pay attention to returns that take deductions for home office expenses. If you’re a self-employed taxpayer, you’re at higher risk of audits because you might have unreported income and more opportunities for deductions.
- Don’t Leave Anything Blank
An empty space in your tax files can be a good reason for the audit. You need to answer every question and fill every space. There is no room for a dash or a zero. You’re not going to let the IRS assume anything. Also, you cannot make any errors when filling the forms.
The above 14 ways can help you avoid chances of attracting the IRS’s attention. But none of these gives a guarantee that you won’t be audited. The necessary thing to do is to ensure you always keep up with tax laws, be honest, and have correct figures. This way, you’ll have nothing to worry about, even if you happen to get audited.
Also, when getting your tax refund, if you need financial help you can always get instant tax refund cash advance emergency loans online as a last resort.
You can also be smart and ahead of the auditors by finding a good tax advisor. Find out opportunities that can help you reduce taxes or receive tax credits the legal way. If you do everything right, you’ll have nothing to be afraid of, even if the auditors notify you that they’re coming.
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