Audit Avoidance: Compliance and Common Sense

An IRS audit: To taxpayers, the words are usually about as welcome as the words “root canal” are to dental patients. They are not to be sought out, and so serve as a caution against an overly aggressive tax strategy.

Keep in mind, however, that failing to take all of the tax credit credits and tax deductions you the law allows is not a sound strategy either. After all, an IRS audit isn’t the end of the world – especially if you are prepared with paperwork and sound tax advice.

So what are some of the factors that make it more likely that IRS computers will flag something in your return for possible audit? You may have heard that the chances of being audited rise with a taxpayers’ income. That remains true. Indeed, the IRS is increasingly targeting the returns of very wealthy people to be audited.

Another factor is the size of your charitable deductions. Be sure you have proper documentation of your contributions to charitable organizations. If the IRS has doubts about the size of the deduction you are claiming, it may ask for a correspondence audit. In such an audit, the IRS is likely to ask you to mail in the paperwork that shows the details about what you gave.

On the income side, it is important to remember to include all categories. For example, perhaps you made money as an independent contractor in addition to the wages shown on your W-2. If that is the case, make sure to include both types of income. This may sound like simple common sense, but using common sense can have a lot of trouble down the road.

Source: “15 Ways To Invite An IRS Audit,” Forbes, 1-23-13