How can you avoid an income tax audit?

On Behalf of | Jan 4, 2021 | tax law | 0 comments

Doing your taxes is already taxing enough. Adding a potential audit to the mix only makes things more stressful. There are many different reasons the Internal Revenue Service (IRS) may flag you for an audit.

While there is no true way to completely eliminate the possibility of getting audited, you can take steps to reduce your chances.

Setting the odds in your favor

The Street discusses ways to avoid a tax audit. The first thing to understand is that the IRS does not audit just because of red flags. Sometimes, they choose people at random to audit. You may also be part of certain targeted groups in a given year, making you more likely to end up audited by the IRS.

Knowing that, there are still ways to put the odds in your favor. In general, these steps revolve around honesty in your tax forms and avoiding anything that could look like fraudulent behavior.

First, do not omit sources of income. Even a small amount may catch the eye of the IRS. Collect all documents from stocks, bonds, accounts that bear interest and more. If you make over $100,000, this is particularly pertinent. The IRS seemingly targets this number and above in recent years.

Avoid miscalculations and false claims

Next, avoid math errors. Double and triple check all math equations. Use an automated program if you can, as it helps eliminate this simple error from your filed documents.

Do not claim false business expenses, either. This is particularly true if you filed as self-employed. The IRS understands that it is easy and tempting to hide personal expenses under these categories. They pay more attention accordingly.

Finally, understand if you are part of a target group. This includes self-employed people, small businesses and people making over $100,000. The IRS could audit you for any reason, but they keep a closer eye on these groups.