How Do You Prevent an IRS Audit?

In general, a tax audit is feared by many people. Although there are several horror stories out there from people who have been through tax audits, an unfortunate fact is that many of them are factual. At any point, the Internal Revenue Service can audit individual taxpayers or businesses. Luckily, only approximately 1.5% of all of the tax returns in the United States are ever audited on an annual basis, and there are, in fact, steps and precautions you can take to reduce your chances of being one of the unfortunate people selected by the IRS.

The most important thing to remember is to report all of your income completely, regardless of where you get it from. No matter if you are an employee, an independent contractor or a business owner, the IRS guidelines clearly indicate what is required to be reported in a tax return. The simple earnings such as tips also have to be declared in your tax return to avoid IRS problems.

Another great tip is to ensure that you have the needed documentation available. Employers, in general, are obliged to provide you a W-2 or a 1099 that reports the amount you earn from the previous year during the time spent working there. The numbers on your W-2 should always match what is on your tax return. It is always a bright idea to keep the paperwork and have it readily available so that you have the ability to prove everything that you have listed on your tax return.

Ensuring that there are no mathematical errors in your tax return is another simple yet equally important tip. The IRS will without a doubt, notice this kind of errors as they are very easy to check. Make sure that the lines on the tax form contain the correct entries. To the IRS, being sloppy in doing the math implies being sloppy in all other areas of the tax return.

Several business owners and independent contractors make the mistake of thinking that their home offices are used strictly for business. Because certain guidelines pertaining to home offices are outlined, simply claiming your house as a home office causes problems. The guidelines include not keeping personal possessions and not conducting personal activities in the home office. Also, you must not declare more than 20% of your home as home office.

Although it may seem that the government is against you and you can’t adequately battle an audit, certain precautions are available to avoid one. Another important thing to take note is to remain composed and keep in mind that there are precautions you can take to protect yourself. After all, no one wants to turn a tiny glitch in the tax return into a big IRS issue.