10 Strategies for Preventing an IRS Audit

FinanceTax

  • Author Alan Olsen
  • Published March 26, 2008
  • Word count 464

Do you want an IRS agent to make a visit to your office? I don’t know many people who do, but knowing strategies to prevent an unwanted visit could certainly save you from an extra bit of stress in life. Only one percent of taxpayers yearly are selected for IRS audits, but that number is increasing. Below are 10 strategies that you can use in preventing the likelihood of being audited by the IRS.

  1. Avoid Fluctuations In Income

The IRS knows how much you live on and so if they notice a drastic change in your income, they will most likely suspect that something was not reported.

  1. Report All Income

The IRS has access to quite a bit of information, so it is probably not the best idea not to report some income. If they discover unreported interest, dividends or miscellaneous income than you may not be heading down the nicest path. Keep in mind that the IRS receives 1099s that you are receiving too.

  1. Abnormally Low Income

If your income is substantially lower than other individuals in your profession than the IRS may become suspicious.

  1. High Income

If you have an income over $100,000, you may want to be extra cautious. IRS audits are five times more likely to occur if you are in this income bracket.

  1. Don’t Round Numbers

Good record keeping will draw less attention from the IRS. When numbers are rounded the IRS will suspect that errors could have occurred. For instance, reporting $1,978 dollars on meal expenses rather than $3,000 demonstrates that you are organized and precise.

  1. Watch Your Number of Charitable Contributions

Charity is important, but be aware that a red flag may arise if you have made quite a few contributions. Make sure to hold onto your receipts, if you are donating five times as much as the average person in your income bracket.

  1. File a Complete and Organized Return

When the prepared return is sloppy or missing information, the IRS will be more likely to target you. With technology today, returns are checked by a computer, but if a computer can’t read the return than an IRS agent will have to. This is where filing electronically comes in quite nicely.

  1. Be Careful with Deductions

The IRS knows the average percent of deductions for your income bracket. You are entitled to the deductions that you have, but if they are more than the averages you may draw attention to the IRS.

  1. Consistent Information on State and Federal Returns

If you are giving the IRS different information on the returns that you are submitting, they may suspect that you are trying to hide something from them.

  1. Avoid Participation in Tax Scams

You should avoid participating in these transactions as they will only raise more red flags in your direction.

Alan Olsen is the managing partner at Greenstein Rogoff Olsen & Co., a top Bay Area CPA firm. He focuses on developing innovative strategies for business enterprises and individuals. A specialist in income tax planning, he frequently lectures and writes articles on tax issues for professional organizations and community groups. His website is ranked among the top in the nation for accounting firms, featuring tax tools and business leadership articles: http://www.groco.com

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