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There seems to be an overt fear of having a tax audit. While a tax audit is certainly something that you don't want to go through if you don't have to, as long as you do your taxes correctly and can document all the deductions that you have taken, there is nothing to fear. It's also important to remember that the vast number of audits are generated randomly, so just because you get a tax audit notice doesn't mean that the IRS suspects you of wrong doing. All that being said, there are some simple things that you can do to decrease the chances of having your taxes red flagged for an audit.
First and foremost, make sure all the math calculations on your return are correct. An incorrect math calculation will draw attention to your tax return and automatically have it inspected closer. Even if you decide to send in your return by hand, it's worthwhile placing all the numbers into one of the <a href="http://www.pfadvice.com/2006/02/06/financial-challenge-day-12/">IRS Free File</a> programs to make sure that all your arithmetic is correct as a safety check.
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Be sure to sign your tax return. While you might not think this happens often, it's one of the most common errors found on tax returns. If the return is not signed, it won't be accepted by the IRS and just like with miscalculations, your return will automatically be inspected closer than usual. If it was sent near the tax filing deadline and it gets sent back, it might also be considered late and incur penalties.
If you aren't able to get your taxes done by the filing deadline, be sure to fill out <a href="http://www.irs.gov/pub/irs-pdf/f4868.pdf">form 4868</a> to get an extension. Also remember that filing for an extension doesn't mean you can delay paying any taxes owed. You still need to estimate what you will need to pay. Not filing an extension will automatically pull your tax return aside for penalties and have it reviewed more thoroughly when it does arrive.
If you report your income on the tax form differently than it was reported to you on your form 1099 or other income statements, take the time to attach an explanation as to why the numbers are different. When numbers don't match and there is no explanation, it's a red flag that something is strange with the tax return and you are more likely to get audited.
In the same vein, if you have a large deduction such as medical expenses, charitable donation or something that is unusual compared to your previous tax returns, be proactive in explaining what is going on. Attach supporting evidence and take the time to write a thorough explanation so that there is no reason for the IRS people to look further into your return.
There are also certain forms that if you fill out will increase your likelihood of being audited. This doesn't means you should not take the deduction you're entitled to take, but it does mean that you want to be extra thorough in documenting all the deductions you do take so that on the off chance that you are audited, there won't be any questions regarding your deductions. For example, if you file Schedule C (for self-employed), your chances of being audited will rise sharply. The same is true for taking a home-office deduction on your taxes.
In the end, you want to be aggressive and claim all the breaks and credits that you have coming, but in doing so, you want to also make sure that you have the supporting documentation to back up your claims. If you approach your taxes in this fashion you will not only reduce the chances of getting audited, but will have nothing to worry about if you do.
First and foremost, make sure all the math calculations on your return are correct. An incorrect math calculation will draw attention to your tax return and automatically have it inspected closer. Even if you decide to send in your return by hand, it's worthwhile placing all the numbers into one of the <a href="http://www.pfadvice.com/2006/02/06/financial-challenge-day-12/">IRS Free File</a> programs to make sure that all your arithmetic is correct as a safety check.
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Be sure to sign your tax return. While you might not think this happens often, it's one of the most common errors found on tax returns. If the return is not signed, it won't be accepted by the IRS and just like with miscalculations, your return will automatically be inspected closer than usual. If it was sent near the tax filing deadline and it gets sent back, it might also be considered late and incur penalties.
If you aren't able to get your taxes done by the filing deadline, be sure to fill out <a href="http://www.irs.gov/pub/irs-pdf/f4868.pdf">form 4868</a> to get an extension. Also remember that filing for an extension doesn't mean you can delay paying any taxes owed. You still need to estimate what you will need to pay. Not filing an extension will automatically pull your tax return aside for penalties and have it reviewed more thoroughly when it does arrive.
If you report your income on the tax form differently than it was reported to you on your form 1099 or other income statements, take the time to attach an explanation as to why the numbers are different. When numbers don't match and there is no explanation, it's a red flag that something is strange with the tax return and you are more likely to get audited.
In the same vein, if you have a large deduction such as medical expenses, charitable donation or something that is unusual compared to your previous tax returns, be proactive in explaining what is going on. Attach supporting evidence and take the time to write a thorough explanation so that there is no reason for the IRS people to look further into your return.
There are also certain forms that if you fill out will increase your likelihood of being audited. This doesn't means you should not take the deduction you're entitled to take, but it does mean that you want to be extra thorough in documenting all the deductions you do take so that on the off chance that you are audited, there won't be any questions regarding your deductions. For example, if you file Schedule C (for self-employed), your chances of being audited will rise sharply. The same is true for taking a home-office deduction on your taxes.
In the end, you want to be aggressive and claim all the breaks and credits that you have coming, but in doing so, you want to also make sure that you have the supporting documentation to back up your claims. If you approach your taxes in this fashion you will not only reduce the chances of getting audited, but will have nothing to worry about if you do.
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