The word “audit” has the power of striking fear into nearly every red-blooded, tax paying American citizen. If you want to avoid hearing that spine tingling remark, there are five pro-active steps to take before you submit your 1040.
1) Check for errors and then, check for errors again.
Audits are triggered when the IRS suspects a taxpayer of errors or fraud on his return. Since you know better than to commit tax fraud or evasion, make sure you review your return thoroughly before submitting it to Uncle Sam. Many income tax software programs provide this service, scrutinizing your return for anything that the IRS might perceive as a red flag. This can be a noteworthy bonus if you decide not to hire a CPA.
2) Claim credits wisely.
Credits are wildly popular with Mr. and Mrs. Taxpayer because they are a form of guaranteed cash back. While it might seem harmless to fudge some of your numbers and maximize your cash back from the government using credits as your vehicle, it is important to note that credits are under a high-powered IRS microscope. Claiming too much or too many means an audit is almost guaranteed. Make sure you qualify for each credit (and each amount) you claim. If you have questions, consult a professional.
3) Be vigilant about your addendums.
Schedules and additional paperwork tend to trip people up at tax time. Review your paperwork for any errors and avoid the temptation to claim deductions you do not have documentation to substantiate. If you are audited, receipts and documentation will take center stage. If you do not have them, you could face a hefty fine.
4) Account for all of your income.
Even if you do not receive a W-2 or 1099, that does not mean the employer or company neglected to send it to the IRS. Go through your records and make sure you have all of your income and earned interest income accounted for. If you are missing something, contact the company for a copy before you file.
Hand written returns are often prone to errors and erroneous information, meaning that the IRS takes a good, hard look at these, before turning their gaze to e-filed returns. If you want to avoid an audit, e-filing is a smart move.
Today, tax preparation companies and software companies give consumers peace of mind offering audit protection and IRS watchdog guarantees. Review the terms of your selected tax preparation vehicle and use these five tips to avoid a potential audit.