There are thousands of citizens who do not pay their income taxes each year, which leaves the government scrambling to find a way to pay its bills. This has prompted the IRS to increase the number of people they audit every year. While you can’t prevent your return from being audited, there are some things you can do so that your return does not draw attention of the IRS.
Hire Wisely
If your tax return is uncomplicated, then you can file it on your own. However, you may feel more comfortable hiring a tax professional to prepare your return. You should carefully research the tax professional to make sure that he has the proper certifications and credentials. If the government suspects that a professional tax preparer is regularly making mistakes on returns, then they will audit all of his clients.
Do Not Deduct Hobby Expenses
Some taxpayers will deduct their expenses for hobbies, but this can draw the attention of the IRS. As you fill out your return, make sure that you only deduct business expenses, such as utilities and supplies that are required to run your office. You can even include your home office if you work from your house. However, you should not deduct expenses for hobby supplies. If you haven’t used the materials to make money in three of the past five tax years, then do not deduct them as a business expense.
Incorporate Your Business
Self-employed taxpayers tend to include losses that do not comply with the current tax laws, which makes them more susceptible to an audit. In order to minimize your chances of getting audited, file your taxes as a corporation rather than filing a Schedule C. There are also other benefits to incorporating your business that are not tax related.
Check Your Deductions
If you are taking a large number of deductions, then you may be more likely to be audited. Watch your deductions carefully to make sure that you qualify for them, and claim as many as you can. However, you should only deduct up to half of your adjusted gross income in order to avoid speculation.
Report All Sources of Income
You should report all of your income, even if it isn’t from your major employer. You should include money that you have earned from jury duty, yard sales, gambling and mowing your neighbor’s lawn. You should also be very careful to report income from investments because these will be reported by the investment agency.
File Electronically
If you e-file your taxes, then you reduce your chances of getting audited by the IRS. It is also easier and cheaper, and you will get your refund faster.
If You Get Audited
If you do get audited by the IRS, then don’t panic. Audits are usually done over the phone and involve a few short questions about your return. The Taxpayer Advocate Service is a department of the IRS that is designed to help taxpayers get the representation they need for an audit. If you hire a professional tax preparer, then he may provide assistance as part of his services.
The IRS has gradually increased the number of audits that it performs each year, and there is a slight chance that you will be randomly chosen. However, you can reduce your chances by making sure that you are careful and honest about the information that you provide on your return.