There are certain “red flags” that the IRS searches for in order to deem an audit necessary. And when these red flags are prominent, the IRS can conduct a tax audit.
Let’s delve into some of these reasons on how to avoid an IRS tax audit
Always state true facts:
Please be as accurate as possible on your tax return. There are three various computer programs the IRS runs to verify the accuracy of your data. They have the Discriminant Function System (DIF) that makes use of a classified formula where the IRS can determine which returns have a potential for certain errors and ranks them accordingly. There’s also the Unreported Income Discriminant Function System (UIDIF) that tries to search for potential unreported income. The Information Returns Processing System (IDF) crosschecks your return with third parties to verify authenticity and consistency. With these computer programs running such checks, it’s very difficult to put false information on your return. So if you’re asking for the best advice on how to avoid an IRS tax audit? The answer is: Be HONEST!
Seek help from a tax professional and/or use a tax software program for your tax requirements:
Calculations should be more accurate, the return should be more correct, and legibility should be more ensured when asking a tax professional to assist you. Tax software could be a big help as well. Math errors or incompleteness will trigger a red flag on your return. Avoid IRS tax audit by getting the professional’s expertise to file your return correctly. Yes, and that’s actually one of the best ways on how to avoid an IRS tax audit.
Filing a Schedule C should be done cautiously
Those individuals who abuse deductions when filing a Schedule C increase their chances of being audited. Expenses can be coursed through an LLC or another entity to keep it legit. Business organizations are able to layer such expenses which make it quite a challenge for the government to double check what is being claimed. With this set-up, the likelihood of an IRS audit decreases.
Be careful when claiming home office deductions
The justification for home office deductions is something the IRS really likes to check. As part of your due diligence, keep a separate phone number for business transactions, update your appointment book of clients when conducting meetings at your house, and use your home office address for billing statements rather than just a PO box. Try to maintain below 20% of the square footage of your business space located at your home.
File your tax return electronically
Mailing your tax return the last minute and not through certified mail might not get that confirmation from the IRS that it was received. Be more efficient by filing electronically and the confirmation notice from the IRS that it was accepted and received should be forthcoming quite immediately.
Have your financial records well organized and detailed
Not having receipts around to verify expenses might not avail you of accepted deductions. You could guess but the IRS computer programs might call you out on your wrong estimate. All income and expenses should be documented properly to back up what you have reported on your tax return.
File a joint return for you and your spouse
If you indicate married as your status, the IRS expects a joint return. Filing separately for couples is acceptable, but more problems may arise since this was not declared on a joint tax return.
Avoid using rounded numbers
When you round off numbers on your return, that sends a red flag to the IRS because you are not reporting an accurate amount. So, try not to do that.
Affix your signature on your return and file it
Not but not least on how to avoid an IRS tax audit is to secure your signature on your tax return. Make sure to file your return, too. So, be precise and careful with your tax return .
These tips on how to avoid an IRS tax audit should not be taken lightly. Otherwise, you should prepare yourself for being the next on queue for the IRS audit.
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