How to Avoid a Tax Audit by Understanding the IRS's Red Flags
While there's no guarantee that you won't at some point receive an audit letter from the IRS, there are ways to avoid a tax audit by understanding the IRS's red flags for scrutinizing returns. To know what to look for to avoid an audit, read on.
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Submitting incomplete returns can be a red flag to the IRS. Make sure your return is legible and has all necessary information, without math errors. Even better, use a tax software that won't allow the return to be filed until it is complete, which eliminates virtually all errors.
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Avoid submitting incorrect income amounts. All income -- wages, dividends, interest, IRA distributions and 1099 forms -- must be reported on your return. Any discrepancy is a big red flag to the IRS and may result in an audit.
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Avoid taking too many deductions. While you should itemize all possible deductions, be careful not to go overboard. Just be honest because too many deductions can be a red flag for an audit. Also, keep any and all receipts.
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Small business owner should be extra cautious with their records. A taxpayer with a Schedule C can be a target for scrutiny. Be accurate and honest with all business expenses, especially the home office deduction, which is a known red flag.
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High income level. Taxpayers with a salary of more than $100,000 are more likely to receive an audit letter. If you fall into that category, that's all the more reason to make sure your return is neat, accurate and backed with receipts and paperwork.
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