Being audited by the IRS isn’t something that anyone looks forward to. About one out of every 37 filers earning $200,000 or more and one in 13 earning over $1 million are audited every year. Sole proprietors, individuals who receive tips and those who keep their own books are more likely to be audited. However, there are several things you can do to prevent the “red flags” that make the IRS want to take a closer look at your paperwork. We have provided you with five ways on how to avoid an IRS tax audit.
Honesty is the best policy when it comes to tax returns, so be sure to report all of your taxable income. This includes income from your employer, your business, tips and interest. Money earned through other channels, such as inheritance, may or may not be subject to taxes. Double-check on anything you’re not sure about so that you can be as transparent as possible.
If you run your own business, you have to be reasonable and realistic when claiming expenses. All the receipts you’ve saved during the year will help you be accurate with this part of your tax return. You may be able to deduct mileage driven, business travel, meals and entertainment, equipment or even office space, but all these expenses must be directly related to doing business. Claiming so many expenses that you show a loss for more than three years in a row tends to attract attention from the IRS.
You may be eligible for a number of deductions whether you’re filing personal or business taxes. This can amount to significant savings if you choose to itemize, but you have to be careful to only take those deductions to which you’re entitled. The easiest way to determine eligibility is to use electronic tax software. You may discover that you can claim more deductions than you initially thought without fear of an audit.
Never send off a tax return without double-checking that every applicable space is filled in and doing all of the math a second time. Use a calculator to ensure accuracy, and place zeros or dashes in spaces where you have nothing to fill in. Don’t forget to sign the return when you’re done.
Having a second pair of eyes, especially when those eyes belong to a professional with tax experience, is a big help when trying to avoid an audit. An accountant can go over your return and identify anything that might stand out to the IRS. If you’re a small business owner, letting someone else prepare your return eases the stress of tax time and helps you get the most out of your deductions.
Being audited can become a long and complicated process involving a lot of paperwork, extra fees and even tax court. The best way to avoid any problems is to be meticulous with your return so that you can catch any mistakes before mailing it out.
At Verdeja & De Armas, our team of Miami tax consultants is dedicated to providing independent and unbiased tax recommendations for businesses and business interests of all sizes. Contact us today for a tax consultation!