Tax season is here, which means it is time for you to file your taxes and it is time for the IRS to get busy with flagging tax returns for auditing. No one wants to be audited by the IRS, so here are a few things that you can do to hopefully keep your red flag lowered and avoid the pesky audit from the IRS:
1. Make Sure to Report ALL Income That Is Taxable.
While you may think you can get by without reporting one of your W-2's or 1099's to the IRS, you better think again. Unless the mismatch is huge, you may not necessarily receive a notice immediately from them regarding the failure to report. However, you can rest assured that it will come eventually and you'll have to pay it plus interest charges. If the reason you don't want to file a certain 1099 or W-2 is because of incorrect income, then contact the company who issued the form and request that an updated form be sent to you and the IRS.
2. Fill Out the Schedule C Accurately.
Individuals who file a Schedule C with their federal taxes are potentially at a higher risk of undergoing an audit from the IRS. This is particularly true for those businesses who receive a lot of cash as payments, such as landscaping businesses and salons. As long as you fill out the form properly and accurately, and you do not claim excessive losses related to your business, you should be fine. However, if you continue to report more loss than profit, you are highly likely to catch the short end of the IRS audit stick.
3. Don't Claim Large Deductions or Charitable Write-Offs.
The more above average you go with your deduction claiming, the more likely you are to get audited by the IRS. The same is true with charitable contributions. Remember, the IRS knows what the average contribution to charity and the average deduction looks like for all income levels. If yours is above average, especially significantly so, you may be the not-so-lucky-winner of an audit. If you have the proper documentation to back up your large deductions and write-offs, then by all means claim it. Otherwise, stick to what you have proof of.
4. Hire an Experienced Accountant or Tax Expert.
If you're worried about being audited by the IRS, consider hiring the services of a professional (such as one from Tax Specialists Of Northern Colorado LLC) to handle your finances throughout the year for you. If you aren't interested in year-round accounting, you can always go to an experienced tax expert for end-of-year tax services. They are trained in deductions, IRS audit red flags, and more, so they'll know what they can and can't do legally, while ensuring that you get the maximum refund/credit from the IRS.