Tips for Avoiding an IRS Audit

By Greenstein Rogoff Olsen & Co., LLP
Posted: 3/2/2010

Do you want to minimize your chance of being selected for an IRS audit? There is no way to completely avoid being selected for an IRS audit however; there are tips that you can follow to minimize your likelihood of being audited.

Below are six tips to lessen the chance of your return being selected for an IRS audit:

  1. Be honest - If you live by the simple rule of honesty, it will save you a lot of stress. It is wise to see that all of your expenses and deductions are true when recorded on your tax return. Mistakes happen, but avoid intentional ones.

  2. Be organized - It is important to keep good records. Properly record any expenses that you are deducting on your tax return. Business expenses such as travel, meals, mileage etc. can be deducted, as long as they have been recorded. If the expense is minimal, a simple note written in a notebook or on a spreadsheet will work, but if the expense is large, keep the receipt. A receipt will help to prove an accurate deduction.

  3. Report all interest - Collect all appropriate tax documents when your tax return is prepared. If your bank or other investment companies have not sent you 1099s for interest on accounts, contact them. The IRS has record of these documents and so you need to record them on your tax return.

  4. Be prepared if you are self-employed - The IRS realizes that self-employment also increases the likelihood of unreported income. You must have proof of your income and business expenses if you are self-employed. You should not record personal expenses as business deductions.

  5. Watch your deductions - If you take deductions that are unreasonable for your income bracket, this may raise a red flag to the IRS. The process that the IRS uses to select returns to audit starts with the IRS computer. The IRS computer gives each tax return a Discriminate Function Score (DIF score). During this process, the deductions that you take are compared to other scores within your income bracket. High scores result from unrealistic deductions within certain tax brackets. If a return receives a high score, it will be passed on to an IRS agent for review to see if any additional tax can be collected. If your deductions seem a bit unrealistic, you should have proof to back them up.

  6. Use a tax professional - A tax return that is prepared by a CPA or other accounting professional is less likely to be selected for an IRS audit than a self-prepared return. A professional knows the laws and can help you to make sure that all proper deductions are taken and that all income is reported.

Taking these steps in preparing your return can help you to avoid possible red flags that could lead to an IRS audit.

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