How to Avoid Getting Audited by the IRS
Once the IRS decides to do a tax audit on your tax return, you are guilty until proven innocent. You are required to show clear documentation to support the numbers on your return. A tax audit can challenge your numbers even if they are accurate, if your records are not complete and well-supported. It is much harder to prove your innocence in a tax audit than to just avoid being targeted for a tax audit in the first place.
These are some common mistakes that lead to a tax audit:
You can really burn yourself and risk getting audited by the IRS if you fall for the common tax myth that preaches that “you can spend money on a variety of very large purchases, and shield the value of these purchases from taxes if you declare these purchases are being used for business… including your boat, your summer home, your recreational vehicles, your vacations…”
The truth is that any item you own, or any trip you take, can be deducted as a business expense only according to the percentage of time it is actually used for business- which must be documented, and must follow specific rules. Any time you spend your assets recreationally counts against the percentage that can be deducted as a business expense.
The most common deductions people get in trouble for are:
- Claiming more dependants than they legally have.
- Claiming charitable donations to unqualified charities that are not tax exempt.
- Claiming more vehicle mileage than was used strictly for business purposes.
- Claiming home office deductions.
These are big red flags to the IRS and the risk of them auditing you is greatly increased.
Incomplete tax returns
The IRS will use any good reason to audit you. You give them a great opportunity when you submit incomplete tax returns. Missing information, poor documentation, and missing money that is unaccounted for, makes the IRS very suspicious.
Keeping good records, saving business receipts, and documenting your expenses can keep you out of danger of a tax audit and get you out of trouble if the IRS does do a tax audit against you.
Another way to end up with a tax audit through the IRS is to round off the numbers on your tax return. It is rare for round numbers to occur and you can bet the IRS knows that and pays attention when they see tax returns with frequent occurrences of it.