Do you know how to avoid a tax audit? The formulas the Federal Revenue Service uses to decide whether US taxpayers are audited are a closely-kept secret, on par with the Coca-Cola formula. Yet, based on information about who has previously been audited, you can make some reasonable judgments.
While some people are randomly chosen for audits (some picks are random), other people have tax returns with similar traits. There is no manual outlining what you can do to prevent receiving the dreaded IRS letter. But, there are actions you can do to lessen the possibility of an audit when filing your return.
Table of Contents
- 1 How to (Try to) Avoid a Tax Audit
- 1.1 Double-Check Your Tax Return
- 1.2 Be Honest and Transparent
- 1.3 Don’t Make Math Errors
- 1.4 Keep Good Records to Avoid a Tax Audit
- 1.5 Don’t Claim Unusual Deductions
- 1.6 Report All Income
- 1.7 Don’t Wait to File
- 1.8 Avoid Round Numbers
- 1.9 Consider Hiring a Professional
- 1.10 Respond to IRS Inquiries Promptly
- 1.11 Conclusion:
What Are Your Chances of Getting Audited?
What are the possibilities of an audit? Quite thin. The common response from tax specialists is “less than 1%”. Even more particular information is provided by the Transactional Records Access Clearinghouse (TRAC), a neutral, independent organization at Syracuse University that collects, organizes, and disseminates data. According to the data, the likelihood of being audited was 3.8 out of 1,000 last year, or 0.38%.
It should come as no surprise that the same TRAC analysis revealed that people making $1 million or more annually had the highest audit likelihood (2.38%). The taxpayers who made the least money, less than $25,000, and who claimed the Earned Income Tax Credit made up the second most likely group. A rate of 1.27% of audits was performed on them. Despite the fact that the number of returns filed by the population’s lowest-income group is significantly higher than that of the rich class (23,526,35 compared with 703,576).
How to (Try to) Avoid a Tax Audit
Are you worried about being audited by the IRS? A tax audit can be a stressful and time-consuming experience that no one wants to go through. While there is no guaranteed way to avoid a tax audit, there are steps you can take to reduce your chances of being selected for one. In this article, we will discuss some tips and tricks on how to (try to) avoid a tax audit.
Double-Check Your Tax Return
The first step in avoiding a tax audit is to make sure that your tax return is accurate and complete. Check that all of your income and deductions are properly reported and that you have all the necessary documentation to support them.
Be Honest and Transparent
Honesty is always the best policy when it comes to your taxes. Don’t try to hide income or exaggerate deductions. If you make a mistake on your tax return, correct it as soon as possible.
Don’t Make Math Errors
Math errors are one of the most common reasons for a tax audit. Make sure to double-check all of your calculations to avoid any errors.
Keep Good Records to Avoid a Tax Audit
Keeping accurate and organized records is essential when it comes to taxes. This includes keeping track of all receipts, invoices, and other documentation related to your income and deductions.
Don’t Claim Unusual Deductions
Be careful when claiming deductions that are out of the ordinary. The IRS is more likely to scrutinize deductions that are not typical for your occupation or income level.
Report All Income
Make sure to report all of your income, including income from side jobs or freelance work. Failure to report all of your income can result in an audit.
Don’t Wait to File
Filing your tax return early can reduce your chances of being audited. The earlier you file, the less likely your return will be flagged for further review.
Avoid Round Numbers
When reporting numbers on your tax return, avoid using round numbers. Round numbers can look suspicious and may draw unwanted attention to your return.
Consider Hiring a Professional
If you are unsure about how to properly file your tax return, consider hiring a professional. A tax professional can ensure that your return is accurate and complete, reducing your chances of being audited.
Respond to IRS Inquiries Promptly
If the IRS contacts you about your tax return, respond promptly and provide all of the requested information. Ignoring or delaying their inquiries can increase your chances of being audited.
While there is no surefire way to avoid a tax audit, following these tips can help reduce your chances.
As tax season approaches, many people start worrying about getting audited by the IRS. While it’s impossible to completely avoid a tax audit, there are several steps you can take to minimize the chances of it happening.