Tax season is upon us, and faster than you can say, “How much is my refund?” the April 15th tax filing deadline will be here. Here are some simple tips to help you reduce your audit risk:
- Proofread your tax return
A mistake on just one figure or item can present IRS audit flags and an audit risk. Taking just a few minutes to verify your entries is the number one way to avoid a tax audit. Print out a copy of your tax return and compare your entries with your source documents. Then check every item on your return, including social security numbers, addresses and other personal information.
- Compare last year’s return with this year’s return
Compare each line of last year’s tax return with your current return and examine any of the areas that have changed. Make sure you understand the reason for any big changes.
- Understand that taxes can be complicated
As of 2013, the tax code was 73,954 pages long.[1] If you are doing your own taxes, read the instructions and make sure your entries are correct. If a tax professional is assisting you, give correct information and, more importantly, do your due diligence to make sure he or she is competent.
- Report all income, even when there is a loss
Report your gross (not net) business income, hobby income, and income from sales of securities (even if it was at a loss), as the IRS will be looking to match up your 1099’s with your tax return entries. When they don’t match up, a computerized notice will be generated. Even if you have no net gain or a loss on a business or stock sale, the transactions must be reported.
- Don’t rush, and file an extension if you need to
Mistakes are usually made when you’re in a rush. There’s nothing wrong with filing an extension, just make sure you pay what you owe by April 15th, even if your tax return isn’t quite ready to file.
If you do receive a letter from the IRS, don’t bury your head in the sand and have nightmares of tax audit horror stories. Of all the tax blunders you could make, not dealing with an IRS letter is one of the worst. A simple matter that could be easily cleared up can snowball into a major problem if not dealt with in a timely manner. Seek the help of an expert in IRS audit representation to ensure that you respond correctly.
[1]
http://www.cch.com/TaxLawPileUp.pdf