How to Avoid an IRS Tax Audit

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Follow these tips to avoid an IRS tax audit.

Things You'll Need

• Documentation

Instructions

1. 

   To avoid an IRS tax audit make sure to report all of your income. Don't forget interest, dividends, and capital gains. One of the main reasons people are audited is math errors with their income. Double check your income before you file your income tax return. The IRS checks your income against what is reported. A discrepancy in income will raise a red flag to the IRS and increase your chances for a tax audit.

2. 

   With the economy in a serious decline many creditors are forgiving debt. Forgiven debt is considered income by the IRS. For example, if one of your credit card companies reduced the amount you owe them from $5,000.00 to $3,000.00, you are expected to pay income on $2,000.00. Not paying forgiven debt will increase your chances for an audit. Creditors report forgiven debt to the IRS. However, if your lost your primary residence through foreclosure, the Mortgage Forgiveness Debt Relief Act of 2007 does not require that you pay income on the forgiven debt. Be careful. If you lost a rental property, you will have to pay tax on the forgiven amount.

3. 

   Never tell anyone you got one over on the IRS. Informers can make up to 30% of uncollected debt. To avoid a tax audit, keep your lips zipped.

4. 

   The IRS is cracking down on small business owners especially those who claim losses and those who receive cash income. Make sure to have proper documentation. Check your bank statements to make sure they collaborate with what you report to the IRS.

5. 

   Don't go overboard on home-office tax deductions. Your home office must be your principle place of business. If your employer provides an office area at the business location, do not deduct the expenses from your home office.

6. 

   Homeowners who take a loss on their principle residence are not allowed a tax deductions. So if you sold your home for less than you bought it for, you cannot deduct the loss. If you made money on a house, the income is a capital gain and must be reported to the IRS.

7. 

   Large cash contributions to charities in relation to your income will raise a red flag to the IRS. Be prepared for an audit. Make sure to have proper documentation.

8. 

   Itemized deductions that exceed IRS charts in relation to your income will also stand out and increase your chances for a tax audit.

Tips & Warnings

• The IRS is increasing the percentage of audits each year.

Resources

• IRS website
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