Tax Day is looming — for 2018, it’s Tuesday, April 17. As it approaches, your stress level is probably pretty high. Aside from just the stress of getting your taxes done by that date, there’s always the dark cloud of a possible audit hanging overhead.
No one wants an IRS audit, ever. Use these tips to significantly lessen your chances of being audited — you’ll gain peace of mind in the short-term and hopefully avoid an audit in the long-term.
1. Determine if you’re a likely audit target
The first thing you need to do is decide if you think you’re a likely candidate for an audit. If you work in a cash business, according to Legal Zoom, such as waitressing, bartending, or hairdressing, you’re already more likely to be audited.
Likewise if you’re a lawyer, accountant, or doctor. If you decide that you are a good candidate for an audit, make sure you are extra careful with the things you deduct — document, document, document — and don’t take miscellaneous deductions.
Next: Do this if you’re self-employed.
2. If you’re self-employed, incorporate
If you’re self-employed and you file a Schedule C, that also increases your chances of being audited, according to Legal Zoom. Consider forming a limited liability company or incorporating if you’re self-employed — the IRS audits these types of companies less frequently than other small businesses.
You’ll also be able to claim more deductions if you form an LLC. Because the IRS likes to audit small businesses in general, make sure you keep detailed records — you might even want to hire a professional to prepare your tax return.
Next: Explain inconsistencies.
3. Include explanations regarding inconsistencies from previous returns
If you think there’s a chance the IRS will audit you, make sure you explain any inconsistencies from your previous years’ returns, according to Legal Zoom. Inconsistencies might include a name change or a different number of dependents, income, or deduction amounts. Send in worksheets, receipts — anything you deem appropriate — to back up those deductions.
For example, if you made significantly higher charitable contributions than in previous years, make sure you explain why — and even send in a copy of canceled checks. If the system flags you for an audit, an IRS agent will look at your return and hopefully determine that you have documented your deductions enough that you don’t deserve one.
Next: The IRS flags these things.
4. Know what the IRS usually questions
It’s important to know what the IRS typically questions, according to Legal Zoom. These are the things that it is imperative you keep proper documentation for:
- Home office deductions
- Medical expenses
- Business travel, meal, and entertainment expenses
- Bad debt expenses
- Casualty losses
Next: Amendments are risky.
5. Don’t file amendments to your return
When you prepare your taxes, your goal is to fly below the radar, according to Legal Zoom. If you file an amended return, you’re definitely not doing that. Once you file an original return, the IRS might scrutinize your original return more carefully, so do yourself a favor and get it right the first time.
Next: It’s all about the timing.
6. Know the best time to file
According to Legal Zoom, most tax advisors say your chances of being audited go down the later you file. Some even advise clients to file for extensions because they say most returns are already chosen for audits in a given tax year by the latest extension deadline of October 15th.
Caveat: If you owe taxes, however, make sure you pay them by April 17 or you’ll face penalties. If you don’t know how much you owe — or you can’t afford to pay — send a check for a small amount, even $10, with your return to show good faith and lower any penalties.
Next: Check yourself.
7. Check your math — twice
According to Legal Zoom, one of the best things you can do to avoid an IRS audit is to use a calculator and double-check all your math. Be especially careful that your numbers match the ones your employer(s) submits to the — the organization’s computer matches them up and looks for discrepancies.
In addition, make sure your deductions that have adjusted gross income limitations are correct. These would include things such as the medical expenses deduction. Although you likely won’t get audited if you make a simple math mistake, you certainly don’t want the IRS to think you prepared your return carelessly or an agent might take a closer look.
Next: Penmanship counts.
8. Be neat — and exact
Another way to help avoid an audit, according to Legal Zoom, is to use exact numbers instead of rounded off ones. In addition, write as neatly as you can so the IRS agent reviewing your return doesn’t have to stress about being able to read them. Last, make absolutely sure your federal and state returns match.
Next: More is better
9. Don’t leave anything blank
It’s entirely possible the IRS might choose you for an audit simply because you left an empty space on your return, according to Legal Zoom. It’s essential you fill in every blank — answer every question and make sure you put something on every line, even if it’s just a dash or a zero. The last thing you want to do is leave room for the IRS to assume anything.
Check out The Cheat Sheet on Facebook!