What You Need to Know About IRS Tax Audits

10 Ways to Avoid a Tax Audit

avoid a tax audit
Written by fritzie

The IRS fields over 250 million tax returns every year. Those returns represent over 3 trillion dollars collected from American individuals and businesses.

That massive amount of money collected by the IRS isn’t the only stressor associated with tax season.

One of the most commonly sighted stressful components of filing taxes is the prospect of getting audited. When you’re audited by the IRS, you need to go through a lengthy process to provide deep levels of information in order to justify your returns.

Not only is this process arduous but it could end up costing you more in back taxes and also result in costly penalties.

To help improve your chances of avoiding this, our team has put together this article. Below you’ll find 10 proven methods to help you avoid a tax audit!

1. Embrace Being Average

When the IRS performs an income tax audit on individuals, it usually happens to people who fall outside of the norm. That means, if for your age group your financial situation is standard, you reduce your chances of being flagged.

On the other hand, if you’re making significantly less than others in your demography or even significantly less than you did in years past, this could trigger an additional once over on your returns and an audit.

Therefore, to avoid a tax audit, you’ll want to be as normal as possible on paper.

2. Double Check Your Return

If you’re using tax filing software, a lot of the math that’s present on the first couple of pages of your tax return is automatically calculated. If you’re filing a paper return though, you’ll need to do a lot of adding on your own.

Doing something as simple as forgetting to carry over a number or misprinting a decimal can result in a flag from the IRS. To avoid extra screening be sure to check your work before filing.

3. Make Sure Your Social Security Number is Correct

There’s no identifying factor on your return more important than your social security number. If you accidentally put the wrong one on your return, expect to get audited and possibly run into a whole bevy of other issues.

This one is easy to avoid. Simply give all socials present on your documents a once over before moving onto other parts of your return.

4. Make Sure You Report all Income

We live in a world of side-hustles. From UBER driving to freelance writing and beyond, many Americans have diversified income streams.

This diversity often leads to people overlooking reporting income from certain sources. If your contract employer reports to the IRS that they paid you a certain amount of money and you don’t report it on your return, you’ll significantly raise your chances of facing a tax audit.

So, make sure that all of your income from side jobs, bank interest, dividends, etc. are reported to the IRS.

5. Don’t Report Too Many Years of Losses

This one is targeted at business owners. While it’s common for many new companies to go a few years without generated a sizeable profit, if you’re consistently reporting losses to the IRS, you may have to deal with a tax audit.

The IRS is sophisticated in drawing conclusions from your income. They know that if you’re reporting consistent losses but have children, cars, and a home in your name that something isn’t adding up.

So, to avoid a tax audit, do your darnedest to earn a livable income from your business venture.

6. Don’t Earn Too Much

This one is a little tongue in cheek. Sure, you’ll want to earn as much money as possible while working. But did you know that the top .01% of tax filers make up over a third of IRS audits?

That’s because these big earners represent more value to the IRS as far as collecting is concerned. If you’re making a meager sum, given how stretched the IRS is, you run a reduced chance of drawing audit attention.

7. Don’t Get Overzealous with Deductions

Tax deductions are great. They offer you discounts based on a wide variety of things extending from how many kids you have all the way to your vehicle’s registration.

While it can be tempting to stretch the truth and claim as many tax deductions as possible, it’s important to keep kosher here.

Having too many deductions under your belt is a sign the IRS looks for when flagging returns for audit.

8. Be on the Same Page as Your Parents/Children

An interesting reason why many people get audited is because young people and their parents are not on the same page as to whether or not an adult child is dependent or independent.

So, If your child files as an independent and you file them as a dependent, be prepared to get audited. A simple phone call to your mom, dad, son or daughter can clear this miscommunication up before it’s too late.

9. Keep Good Records

If you’re tracking numbers for the purpose of business expenses, having numbers like $300.00 per month for office expenses, $800.00 for car miles, etc. are too clean to be true.

If the IRS sees numbers like this, they’re going to come to the conclusion that you’re estimating and ask for receipts. If you don’t have them, they’ll waive your deductions.

To avoid looking like you’re taking shots in the dark, keep numbers as precise as possible.

10. Don’t Be Afraid of Sending in Corrections

When you file your tax returns the last thing you’ll want to do is file more documents in the way of corrections. Still, if you find a glaring oversight after sending in your returns, filing a correction is much less time consuming than needing to manage an audit.

Wrapping Up How to Avoid a Tax Audit

If you’re looking for ways how to avoid a tax audit in order to reduce your tax season stress, we recommend putting into practice the tips on this list.

In conjunction with one another, they’ll significantly cut the risk that the IRS’ flagging systems will single out your return. This will help keep your tax season burden simple come April!

Want more advice on personal taxes, business taxes, IRS audits and more? If so, dive deeper into the Tax Relief Professional content pool today!

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