How Can I Avoid Being Audited by the IRS?
Have you ever wondered “How can I avoid being audited by the IRS?” I’ll tell you.
Hi, I’m Jeff Fouts, a tax attorney located in metro Atlanta, with a nationwide law practice helping clients who have serious IRS problems.
So, “How can you avoid being audited by the IRS?”
While there are no steps or actions you can take that will guarantee you will never be audited by the IRS, there are some steps you can take to reduce the odds that one of your tax returns will be selected.
The Internal Revenue Service announces the types of tax returns they intend to target each year. For example, the IRS may target tax returns that show more than a certain amount of income, or perhaps less than a certain amount of income, or they may target tax returns of self-employed folks, or tax returns that claim a particular deduction. In addition, the IRS also audits tax returns based on certain red flags, as well as the tax returns filed by unscrupulous tax preparers.
To lower your chances of being selected for an audit, and to increase your odds of winning if you are audited, you should follow certain steps before filing your tax return:
- Be sure to report all of your income.
The IRS has a computerized matching program that compares all information it receives under your social security number to the information you put on your tax return. Reviewing your bank statements for the year is one method you can use to identify unreported income. If you accidentally leave income off of your tax return, you will receive a letter from the IRS increasing your taxes.
- Be sure all of your numbers on your tax return add up correctly.
With the increased use of computerized tax return programs, this type of error has declined. But its still up to you to be sure all of the numbers on your tax return are added and subtracted correctly.
- Review your return for unusually large numbers or for similar deductions taken in multiple places on your tax return because these may signal that you’ve made a mistake. You should carefully review your entire tax return.
For example, Turbo Tax asks, in at least three different places in their automated tax interview process, for your home mortgage interest. We have seen cases where a taxpayer deducted their entire home mortgage in four different places, on their Schedule A, Schedule C, Schedule E and Form 2106! While this may have been an honest mistake, its a mistake the IRS will want corrected and may penalize you for making.
It is also very easy to mistakenly type in an incorrect entry onto your tax return that could either dramatically increase the tax you owe or the refund you are due.
- Don’t take unreasonable, or untruthful, tax deductions.
We once saw a tax return that claimed the taxpayer had driven over 1,000 miles a day for business 365 days in one year! Even if this mileage was 100% correct, the IRS is very likely to audit this tax return to make the taxpayer verify that what they put on the tax return was in fact correct.
- Don’t file as Head of Household if you are really Married Filing Separately. Also, you shouldn’t claim a person is a dependent if you don’t qualify to claim that person just to get the Earned Income Credit.
- Don’t take unreasonable tax positions. Be realistic.
- Don’t incorrectly take business deductions.
- Don’t deduct incorrectly deduct personal expenses, for example don’t you incur on behalf of your employer on your tax return if you would be eligible to be reimbursed for those expenses if you had turned in an expense report. If your employer would have reimbursed you if you had asked, and you just forgot to ask, that doesn’t mean you are entitled to deduct the expense.
The tax code is confusing. Even the IRS’ Taxpayer Advocate Service stated in one of their Annual Reports to Congress that “the most serious problem facing taxpayers is the complexity of the Internal Revenue Code.” The sheer number of words in the Code has tripled over the last three decades. It actually a miracle that taxpayers don’t make more mistakes on their tax returns than they do.
It’s no wonder that more and more taxpayers are turning to tax professionals to help them correctly interpret the Tax Code and to help them prevent being audited.
I hope this important video tip has helped you understand the IRS a little better and about how tax problems are solved. Chances are you have questions or concerns about your own particular tax problem. What I encourage you to do is pick up the phone and call me. I can answer your questions. Over the past 20 years I’ve represented clients in all 50 states and 29 foreign countries, and I welcome your call. You can reach me at (888) 995-6785 or by email at firstname.lastname@example.org. I’m Jeff Fouts and thanks so much for watching. Have a wonderful day.