6 Ways to Reduce Your Chance of an IRS Audit
IRS correspondence and in-person audits, especially among high-income earners, are on the rise. Although there is no guaranteed way to prevent an audit, following these six tips will help you reduce your chance of facing the cost, time, and stress associated with one. (Speak with a former IRS Auditor now)
1. Beware of your deductions. The IRS computer system may flag your tax return if your “deduction to income” ratio is unusually high. Individual and business taxpayers should only claim valid deductions on their return for a given tax year and use extra caution to avoid “double dipping” by claiming a deduction or credit twice on the same return. To learn what deductions you’re entitled to, and which ones to avoid, see our Deductible vs. Non-Deductible Guide.
2. Claim proper exemptions. Ensure your personal exemptions are correctly calculated and claimed on your tax return. To determine the proper number of exemptions to claim, review these six facts about exemptions and dependents. For more information on exemptions, refer to IRS Publication 501 or contact us for a FREE consultation with our former IRS Auditors and CPAs.
3. Ensure all of your tax filings reconcile. This includes all tax returns, documents, and other tax-related records sent to the IRS, Social Security Administration, and your State. If you’re an employee, be sure your Form 1040 matches the Form W2 filed by your employer with the aforementioned agencies. If you’re a business, all quarterly filings should reconcile perfectly with your annual tax return.
4. File on time. Filing late, or even worse, filing multiple tax returns late, may trigger an IRS tax audit. High-income taxpayers that file multiple tax returns at the same time may be setting themselves up for review by the IRS. The IRS makes it easy to timely file your tax return using e-file. Taxpayers that need to file an amended return should follow these tips to minimize any potential problems.
5. Document. Document. Document. If you’re unsure if the IRS will understand your claimed exemptions, deductions, or expenses, be sure to provide the agency with adequate documentation to substantiate your claim. Attach receipts, copies of canceled checks, or a letter of explanation to support your claim. The key here is to clarify any items on your tax return that may appear questionable to the IRS, in advance. A licensed tax preparer will know when additional substantiation is warranted.
6. Stay in compliance. The chance of a tax audit due to random selection is very slim (less than 1%). With that in mind, the best way to reduce your chance of an audit is to ensure the IRS isn’t given a reason to contact you. Maintaining compliance with your tax obligations, such as tax withholding and filing, is the best and most effective way to stay off the IRS radar.
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