Preventing an IRS Audit

A tax audit is dreaded by many mainly because those who have experienced the process shared horror stories about their experience. The painful reality, however, is that no matter how horrible and outrageous these stories seem, several of them are factual. At any time, both individual tax payers and business entities can be audited by the Internal Revenue Service. But based on statistical data, more or less 1.5% of all tax returns in the United States are ever audited yearly. This is due to the fact that a number of precautions can be taken to reduce your chances of getting an IRS audit.

The first step is making sure you declare all of your income completely, regardless of what source you get it from. No matter if you are an employee, an independent contractor or a business owner, the IRS guidelines clearly state what is required to be reported in a tax return. The simple earnings such as tips also need to be declared in your tax return to avoid IRS problems.

Another good tip in avoiding an IRS audit is ensuring that you have the pertinent documents available to be able to prove everything that you have listed, should it be necessary. One example is your W-2 or the 1099, which is provided by your employer and which reports the amount you have earned in the previous year while employed in that particular company. Verify as well that the numbers in your W-2 are the same as those on your tax return.

Ensuring that there are no mathematical errors in your tax return is another simple yet equally important tip. The IRS is quick to spot this kind of errors as these are very easy to recognize. You have to double check that the correct entries are in the correct lines of the tax forms. To the IRS, being sloppy in doing the math means being sloppy in all other areas of the tax return.

A common mistake that self-employed business owners or contractors commit is think that they use their home offices strictly for business. To qualify for the associated deductions, a home office should only be utilized for business purposes. Simply declaring that you have a home office is questionable and will bring your tax return to the attention of the IRS. Since this is the case, you may want to make sure that you have a solid case against any issues they may have so that you do not end up having a big IRS problem. A simple example is the fact that occasionally working in your dining room does not mean that such can be considered a home office. You should not keep personal belongings in your home office and personal activities such as parties or other social gatherings must not occur there. In addition, not more than 20% of your home should be declared as home office.

Although it may seem that the government is against you and you cannot adequately battle an audit, certain precautions are available to avoid one. Another important thing to remember is to remain calm and keep in mind that there are options you can take to protect yourself. After all, you would not want a small glitch in your tax return to cause you more inconvenience, would you?