You are being audited. Those are four words none of us ever want to hear. After all, submitting your federal income tax return to the Internal Revenue Service (IRS) can be a lot of work to begin with. Depending on how complicated your taxes are, simply gathering all the appropriate documentation you need to complete your taxes can be a lot of effort. And if you actually prepare your return yourself rather than paying a Certified Public Accountant (CPA), tax attorney, or other professional tax preparer to complete your return, then the process is that much more difficult and stressful. So you certainly want to do everything you can to avoid having to revisit your tax return as a part of an IRS audit.
So is there anything you can do to avoid an IRS audit? Thankfully, there is… or at least there is a way to minimize the chance of your return being selected for an IRS audit. As some returns are selected for audit purely at random, there is no way to completely prevent your return from being selected (unless you choose not to file your taxes, which is not a course of action I recommend). But following are five things that increase the odds of your tax return being audited by the Internal Revenue Service.
- Calculation Errors. Be sure that all of your math calculations are correct. Simple errors in addition or subtraction can cause your taxes not to foot properly when entered into the IRS’ computer systems. Such errors can lead to the Internal Revenue Service reviewing your return in more detail and potentially trigger an audit.
- Interest, dividend, and W-2 reporting errors. Certain statements you receive for use in your tax return, such as those for interest and dividends (e.g., 1099 forms) or wages you earned during the year (e.g. W-2s), have very specific numbers that must be entered from the statements into your tax forms. And copies of some of these statements are sent to the IRS as well. Therefore, if you do not enter the numbers correctly, it will raise flags that may result in your return being audited.
- Over-abundance of itemized deductions. If you use itemized deductions rather that the standard deduction, and especially if your itemized deductions are exceedingly high for your income level, the IRS is more likely to select your return for an audit. Therefore, be sure your itemized deductions are accurate and you have the documentation necessary to support them.
- Incomplete return. The Internal Revenue Service has specific forms they want a taxpayer to complete based on the type of return being filed. If you do not include the correct forms with your return or you do not complete the forms fully, it can trigger an IRS audit of your tax return.
- IRS knowledge about your inappropriate tax items. Remember that the Internal Revenue Service pays bounties to people who turn in others who have not paid their appropriate amount of tax. Therefore, if you brag to your friends on Facebook, MySpace, Twitter, or other social media sites about how you cheated the IRS, know that you may be turned in by your “friends.”
In summary, you should make every effort to submit an accurate and complete tax return, which will put you in the best possible position to minimize the chance of having your return audit while being able to defend your tax return should an IRS audit arise.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.