You probably have seen ads stating that you can completely avoid a tax audit from the IRS if you follow certain steps. If you think it’s possible to completely avoid a tax audit, take a seat and take a deep breath, because you won’t be able to stop it.
No one can promise you that you’ll never be audited, because although a wide group of audits are planned and directed, there is a small percentage of audits that are done randomly.
For your pace of mind, we can assure you that the audit percentage is small, usually less than 1%. For example, in 2015 the total amount of tax forms audited were 0.7%.
But, even if your tax return looks almost perfect, there is still a small probability that you’ll be selected for a random audit.
Keep in mind that although it takes a lot of bad luck to be selected for an audit, there are some specific factors that can improve your chances of not being selected. In some cases, small adjustments will be all you need to avoid falling into the stack of audited statements.
1- Keep all your receipts
Keep all your expenses and income records organized.
By keeping all receipts, you can file a complete tax return, with precise figures, thus reducing the chances of an IRS audit.
Also, remember that you must keep all your receipts for a reasonable amount of time, depending on your tax situation for the year and when the statute of limitations expires.
2- File your tax return
If you don’t file your tax return, you’ll be audited. Is that simple. Even if you’re just starting and your business is still not generating revenue, file your taxes. If the government does not hear from you, it is likely that they’ll think you are a tax evader.
3- Avoid the sole proprietorship qualification
Small businesses can get significant tax breaks. However, companies classified as belonging to a sole proprietor greatly increase their chances of being audited.
Avoid this category and, as far as possible, file your taxes as a corporation or a society.
4- Don’t round the figures
Rounded figures attract a lot of attention from the IRS. In most cases, it is impossible for you to spend exactly $ 500, 900 or $ 1,500 on goods and services. Add every penny to the values described in your tax return.
5- Calculate well
Simple mathematical errors can open the doors of your business to the IRS. When you complete your tax return, make sure that the total value of the losses or gains is correct. Even a small mistake can arouse suspicion.
Yes, we know that it may seem quite obvious, but mathematical errors are one of the most frequently reported errors every year by the IRS. In addition, it is one of the easiest to detect: the first thing the IRS checks is mathematics.
Then, make your tax return slowly and attentively to the details, checking everything twice to avoid seemingly simple mathematical errors.
6- Do not forget to sign your tax return
If you forget to sign your tax return, your bad memory could cause the IRS to reexamine more rigorously your tax return, looking for other omissions.
7- Do not report less income
You must report all the profits of your business during the year. If you exclude some income from your tax return and you are discovered, you will be liable to pay back taxes, with interest, as well as a fine.
When you report losses in your business year after year, or when your deductions regularly exceed your income, it is a signal to the IRS that something out of the ordinary happens and you will be more careful about your statement.
8- Sustain the deductions
The IRS knows what income and expenses are normal for different types of businesses. Expenses that are higher than average, or unusually low incomes, are indicators that something is wrong with your tax return. If there are legitimate reasons to file inconsistencies like these, you must have the documents to support them.
In this same sense, the Internal Revenue Service thoroughly analyzes the expenses in entertainment and travel, so you will need all the receipts and other evidences to verify that these are necessary for the proper administration of your business.
9- Check the social security numbers
Make sure you write the social security numbers correctly. Filing someone as a dependent, with a wrong social security number, can alert the IRS.
The transposition of numbers can occur by typing quickly. In addition, writing or trying to remember your children’s Social Security number may result in errors. Again, check twice when you write this information.
10- Be thorough from start to finish
Prepare your tax return well. Save all receipts and report all your income. If you feel overwhelmed during the process, hire a professional to help you gather documents and fill out forms.
GlobalTax is the tax preparation firm you are looking for in the Metropolitan Area of Washington (DMV), with more than 25 years of experience providing accounting and tax preparation services.
Contact us, we will help you to reduce your probability of being audited, as well as to be successful when you have an audit.
The audits have been and will continue to be part of the tax collection process for a long time. The key to avoiding an IRS audit is to substantiate your deductions and income. In short, be honest on your tax return.
And to you, how did you do with the IRS audits? Tell us about your good tax practices and recommend other strategies to avoid being audited in the comments section.