Don’t Get Audited. Some Tips to Follow

No one likes getting audited by the IRS, and with the deadline for filing your taxes around the corner, it’s time to start thinking like the IRS. And while the IRS is auditing more and more people every year, you’ll want to be one of the peope they don’t audit. Last year the IRS audited nearly 1.4 million individual returns, and will likely audit the same if not more this year. From the IRS’s perspective, a gap of some $300 billion plus exists between what taxpayers owe and what the government actually collects. No chump change, and so they’re always looking for ways to recoup some of that money. Audits are definitely one way to do that.

While the actual formula for how the IRS audits is confidential, there are some steps you can take to limit the chances of your being audited.

1. Do your taxes on a computer, or have someone do your taxes for you. Tax returns that are written or illegible are a good way to attract the IRS’s attention. Not signing your tax return is also a good way to get a phone call.

2. Be very careful in what you deduct with your home office. Home offices are one area where the IRS knows tax returns have some cushion. Lavish home offices and other related expenses will likely draw attention you don’t want, so try to avoid going overboard on what you claim.

3. The more you earn, the more likelihood you’re going to get audited. The IRS loves higher-income folks because their tax returns are more complex and have more areas for possible infractions. Make sure your ducks are in a row, especially once you hit that six figure income.

4. Understand that the higher your expenses, the higher the IRS interest in those expenses. To prevent the IRS from becoming curious, try writing something up to explain why your high expenses are necessary.

5. Giving. Charity is great, but know that there is a magic percentage that most people make, and if you’re sticking out somehow that that will likely draw some attention. Give away, sure, be charitable, but don’t try to claim that you’re giving away half of your income, because that’s a sure red flag.

See a tax specialist, because the above, while a good start, isn’t even close to what you should know and the practices you should follow when filing your tax returns. Don’t cut corners–it’s much better to follow the rules than to be audited.