- Personal Finance
Tax Audit Help
The chances that you could receive an audit from the IRS is small but that doesn't mean you'll never get a notification. The methods used by the IRS in audit selection is not really known, so anyone can get audited. However, there are ways for you to minimize the chances of getting this dreaded invitation.
Getting chosen for an IRS audit is like going through customs or airport security. If you stand out and seem different from the rest and the usual, you will be considered suspicious, which raises the chances that a federal taxman will come knocking on your door, demanding full disclosure. To avoid getting the unwanted attention from the IRS, it's important that you try to blend in, especially in your category or demographic. Let's say you're a single individual with an annual income of $30,000. If you showed that you donated half your income to charity, that would raise some red flags. Likewise, if you work as a staff for Wal-mart, you're not likely to report business-related expenses due to your job position. This is why it's important that you are aware of what other people in the same demographic as you include in their income tax returns.
It's also critical that you understand that the IRS is very skilled in finding even the most detailed information about you. Your taxman keeps tabs on every document and form you submit -- your 1099's, W-2,s and the like -- and will keep these documents filed for many years to use as reference. If you neglected to include gains, your taxman will notice it. To avoid filing erroneous returns, make sure you keep all your tax forms so you can access them when needed. That way, you'll never 'forget' that $10,000 windfall during that weekend you spent in Vegas.
Knowing your numbers and double-checking on your arithmetic is also important. The IRS uses high-end computers and software to automatically identify and correct any errors on your form. If you have too many mistakes, you can be assured that the IRS will be notified. You could avoid making these errors by simply using taxation-specific software such as Quicken. By using tools such as these, you will not only ensure that your figures are correct and accurate, you will also be able to generate tax returns that's neat and organized. And that is something that the government will appreciate.
Some of the most frequent hosts to tax audits are self-employed individuals, particularly since it's easy for them to 'hide' some of their income and to report personal expenses as business-related expenses. More often than not, the IRS considers self-employed individuals with suspicion and will keep an eye out for them more carefully than for other individuals. If you own a business, make sure you have all your documents on file and that you make a record of all your transactions -- even those that you've just scribbled on tiny scraps of paper. As an entrepreneur, though, you have a distinct advantage. The IRS doesn't audit corporations as often as they do individuals. If you own a business, you might want to protect yourself further by forming a Limited Liability Company or LLC. By doing so, you can clearly define which of your assets and liabilities are business-related and which are personal, thereby gaining greater freedom with deductions. Plus, your status keeps you out of range of the taxman's radar.
Lastly, prepare your tax returns as if you are going to get audited. It's safe to assume that someone from the IRS will be poring over your documents, records, spreadsheets, receipts and notes to make sure that there is an explanation for every expense, deduction and questionable figure that appears in your returns. Be specific about everything and report the exact figures on your items. If you spent, say $2,549.97 on your business lunches, do not write $2,550.00 on your report. The amount has to be exact up to the last decimal. Also, do not categorize items as 'miscellaneous' since the IRS frowns on ambiguity. If you're still at a loss, ask for tax audit help. A professional can guide you on what you need to do and how.