No one wants to face an IRS audit. Somewhere around 1 percent of all tax returns filed each year get reviewed, according to Kiplinger. This means the chances of you being among that population are not very high. Whether you’re in this not-likely-to-get-audited group, there are some clear red flags the IRS looks for that could increase your odds of being audited. Using these tips now, may help prevent an audit later.
Don’t stand out from the crowd
When it comes to who gets audited, many individual and joint tax filers earning between $55,000 and $200,000 usually don’t get audited. Some of these taxpayers file Form 1040-EZ with standard deductions. If you fall within these income brackets, but make a very generous donation to a charity, the IRS may ask questions. So, if you give, be sure to keep detailed records, in case you’re asked for them later.
E-file your return
The IRS encourages filing returns electronically instead of by paper because tax software programs can drastically reduce errors. According to TurboTax, paper returns have a 21 percent error rate compared to just 0.5 percent of e-filed returns. Something minor like illegible handwriting on a paper return could jumpstart an inquiry from the IRS.
Include 1099 form information
File any 1099 forms you receive. Non-wage income earned from self-employment, dividend income, interest earned, or traditional IRA withdrawals is automatically reported to the IRS via 1099 forms. If you don’t report this income, the IRS will eventually catch on. This increases your likelihood of being audited.
Keep good records
Keep records of every expense you claim on a tax return. Some of the more common issues the IRS flags include medical expenses and casualty losses. While documenting expenses won’t decrease the chances of being audited, it will prepare you if you are. It’s a good idea to only claim deductions you have documentation to support.
Check and recheck your returns
If you prepare and file your returns yourself, be sure to go over every line to catch any potential errors. If you’re worried you could make a mistake on your return, let a tax professional help. You can get low-cost tax preparation at a branch nearest you. If you’re an LGFCU member who prefers to use an online solution to complete and file your return, you get a discount when using Turbotax online. The software has built-in checks that look for errors and helps determine your audit risk.
Honesty is the best policy. The IRS looks for people who bend the rules, so don’t be one of them. These tips can go a long way to help keep you from possibly being singled out.
The advice provided is for informational purposes only. Contact a tax advisor for additional guidance.