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Five Ways to Minimize Your Chances of an IRS
Audit
"IRS Audit" - the mere words strike fear into the heart of
many. No one likes the idea of being singled out by the IRS to
go over your accounts with a fine tooth comb, and to top it
off, there is little doubt that the whole, fun process will end
with you writing yet another check to your tax collecting
friends. While there is no way to guarantee you will always
avoid an audit, there are steps you can take to minimize the
chances of your number being called. Give these five tricks a
try to help you stay hidden in the crowd.
The first way you can minimize your chances of an audit sounds
obvious, but bears saying anyway; double check your work. If
you have made a number of simple mathematical errors, then your
return is going to stand out as suspicious. A completely
innocent mistake can raise a lot of read flags. For instance,
if you meant to claim a $500 charitable deduction, and you
accidentally enter the figure as $5,000, with an income of
$30,000 per year, alarm bells are going to be ringing. Even if
the IRS eventually comes to the conclusion that this was
nothing but a simple error on your part, the road to that
conclusion is one you could have avoided traveling if you had
double checked your work.
The next way to fly under the IRS radar is to structure your
finances in a way that won't make them say, "Hey, tax man, over
here." If you are self-employed or get paid in cash, this could
mean you. Get the advice of a financial expert when doing your
taxes, and make sure you return is above reproach. This tip is
linked to our next tip, which goes for everyone: save your
receipts. Save everything, in fact. For every penny you spend
that is tax deductible, make sure you have a record of that
expense. The IRS demands receipts for all tax deductible
expenses over $75, and for expenses under $75, you must have a
written record of your own providing as much detail as
possible. If you don't have the receipts, don't try and claim
the expense. If you are claiming a lot of deductions, then be
prepared to answer questions.
The fourth tip for avoiding unwelcome IRS attention is to file
right at the deadline. Don't send your return in when the IRS
is twiddling its thumbs, looking for something to do (like pick
apart your return). Get yours in with rush to decrease your
chances of standing out. Of course, you can have your return
ready to go early, but hang on to it, especially if you owe
money. Never pay a tax bill early; you don't get any special
credit for it; it's just a favor to the IRS. Do you really want
to do that?
The last tip for deflecting an audit is to flag up potential
problem areas in your return yourself, and send the
documentation in with your taxes. If you started a business
this year and have lots of related start-up expense deductions,
send your receipts with the return so the IRS can check your
return and move on.
These tips will help you avoid sticking out to the IRS, but the
truth of the matter is, people are selected every year at
random for an audit, and you can't control your audit potential
completely. Stay prepared, and have your finances in order all
the time, so if the IRS does come knocking, you can send them
on their way with a minimum of fuss.
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