Why the IRS Audits People
The Internal Revenue Service is the government agency that is responsible for making sure the government gets paid what it is due each year at tax time. If someone’s tax return looks like it could have errors or fraudulent entries in it, the IRS may choose to perform an audit of that individual’s financial records. The goal of the audit is to determine if the tax returns are accurate; if not, it will collect any missing money. An audit is basically a close look at the individual or business’s financial records to compare them to the taxpayer’s tax returns.
Who Is at Risk for an Audit?
While anyone can be audited, there are certain types of taxpayers that are at higher risk for an audit than others. People who are paid in cash or receive significant amounts of money in tips are often audited because they frequently fail to declare all of their income. Also, business owners are prime targets for audits, because they often make bookkeeping errors or claim more deductions than they should. Additionally, people who make unusual deductions, such as many deductions that have nice, round numbers, will be flagged for an audit. Charity contributions and home office deductions that are quite large are often flagged for audit, but not always. Also, taxpayers whose incomes fluctuate significantly from year to year are often audited. Finally, the IRS will audit taxpayers when they receive outside tips that indicate there could be a problem with a tax return.
Protecting Yourself from Audits
While an audit does not need to be a scary thing to someone who is honestly paying the right amount of taxes, you can take steps to protect yourself from the likelihood of an audit. First, make sure you do not make any questionable deductions. If your tax return is complicated and you plan to make a lot of deductions, consult a tax preparation professional to help you prepare your return. If you do make deductions, make sure that you have documentation to back up what you are claiming. Keep careful records, and keep them for at least five years. Also, keep your tax return neat and legible. Make sure that you claim all your income and gains, even if you do not receive a W-2 or 1099 from that particular income source. Finally, when you are done preparing your tax return, double and triple check it. Check your math and all of your entries, particularly your Social Security number. Errors will make the IRS look more carefully at your return, so be very careful to turn in an accurate tax return.