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February 24, 2012


Take Proactive Steps to Minimize Chances of IRS Audit

Be proactive, Stephen F. Covey urged his readers in “The Seven Habits of Highly Effective People.” Over twenty years after the book’s firs publication, this remains excellent advice.

Applying it to tax preparation makes good sense, too. This includes taking all reasonable steps to avoid IRS audits.

Some of those steps are straightforward. Rounding up your receipts and being clear about your tax deductions and exclusions from income.

You certainly don’t want to pay any more tax when you have to. But you don’t want to be overly aggressive either, and have to submit to an audit you could have easily avoided.

It doesn’t make sense, then, to claim a deduction you probably aren’t really eligible for. Or to claim to have given more money to charity than you really did.

It’s true that in the 2010 tax year, only about 1.1 percent of people who filed a 1040 were audited. But the rate of audits was 12.5 percent – over ten times the overall average- for people who earned $1 million or more. This figure was up a full 100 percent from the previous year.

Clearly the IRS is aggressively going after higher-income taxpayers.

Taxpayers should also be aware that the IRS may scrutinize tax returns that appear to reflect a mismatch between the deductions claimed and the income reported. For example, an IRS audit could be triggered if a return contains many deductions for employee business expenses or vehicle expenses, but little or no reported income.

Taxpayers should also be careful to avoid inadvertent errors in compiling their data.

Source: “Know the triggers, avoid an IRS audit,” Chicago Tribune, 2-17-12