Tips on Avoiding An Income Tax Audit
Written by readabook on Tuesday, March 4th, 2008 in Uncategorized, Money & Finance.
According to industry watchdogs IRS audits have more than doubled since 2000. In 2001, only about one in 170 filers were audited, now it is about one in 98. If you make over $100,000.00, are self-employed or receive much of your income in cash your chances are even higher. While there is no way to avoid a random audit there are steps you can take to avoid those red flags that prompt the IRS to want to audit you.
Make sure you report all your sources of income - So many of us have second incomes these days to keep up with the increased cost of living. Make sure you include the income from those jobs on your tax return. Accounting experts say if there is 1099 out there, the IRS will expect you to report the income.
Don’t play games with your deductions - If you feel you would have difficulty defending your deduction don’t take it. Document your expenses. According to MSN money, the IRS targets auto, meals, travel and entertainment expenses.
Be honest about your charitable deductions - Beginning this tax season documentation requirements are much stricter. You have to have an official receipt from the charitable organization for your deduction.
Neatness counts - According to industry experts, if you leave spaces blank which should be filled in or file a messy return the IRS becomes suspcious. This means check your arithmitic too. Fill out your forms, wait a day and then look them over. After years of editing documents, I can tell you that you will be more likely to find any errors if you look at the forms with fresh eyes.
Know when to file your return - tax experts advise if you have brokerage accounts wait to file until early March (you want to make sure your records match your brokerage house records). If you have a refund coming and no audit issues you can file early. If you owe money don’t file until April 15.
Don’t underpay your taxes - You have to pay at least 90 percent of your current year’s taxes or 100 percent of the previous years taxes or you may pay a penalty. Additonally, this sends up a red flag to the IRS and they will probably want to look at the rest of your return.
Don’t try to pass off a hobby as a business loss - According to tax experts the IRS will really get you for this one.
Don’t use the married filing separately option - Tax experts say there is no advantage to this option and if there are no child support issues, the IRS will become suspicious.
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