If history is relied on as an indicator of auditing frequency, then it is likely that less than 1% of eligible Americans will face being audited by the IRS this year. Some of these audits are done on a random basis and nothing can really be done to prevent them. Most audits, however, are actually instigated by the behavior of the taxpayer.
There are several red flags that can be raised by imprudent filing of income tax returns. Knowing what these red flags are can keep you out of serious trouble with the IRS. When filing income taxes, all current accounts, savings accounts and sources of income should be checked for accuracy to make sure no misleading claims are filed.
Valuing Donations
One of the things that should be avoided is the overestimation of donated amounts. The government likes to see people donate items such as food and clothes and even automobiles to charities. Since these are used items, it is difficult for charities to put a value on them, so it is left up to the donator to make the estimate. Vastly over-inflating these amounts is going to draw the attention of the IRS and have them audit you before you know it. Place a fair value on your donations and there will be nothing to worry about.
File Your Return With Care
Many people file their own tax returns. As a result, math errors occur on a regular basis. While there may be nothing suspicious about the actual income tax return, a math error will get noticed and the return is much more likely to be audited. To avoid this, try to be very careful and go over your return several times. There are several very good tax software programs on the market that should help avoid this problem. Read all slips carefully and enter the data correctly.
Don’t Forget To Sign
People often forget to sign the return. This has serious consequences since this simple fact can almost guarantee you will be audited. Make sure to sign all areas that have to be signed. Even forgetting one signature will mean that the IRS will want to check your return.
Log All Sources Of Income Accurately
Another area where people run into trouble is under-reporting their income. Many people work independently or receive tips as part of their wages. There are no employers to automatically keep track of income. While it may be tempting to leave out some income, it is never a good idea and should be strictly avoided. The IRS is smart and will not be fooled for long.
Be Honest With Your Deductions
Having a home office is a great thing, but not if you grossly over-estimate home deductions. Some deductions are perfectly warranted, but if you try to claim large amounts of money for dubious items, this will raise flags. Those who earn $100,000 or more every year have a much higher incidence of being audited than people who earn less. There is nothing much that can be done about this, but keeping all current accounts scrupulous will avoid getting into trouble with the IRS.
This post was written by Louise Tillotson on behalf of MoneySupermarket.com
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