Tips to Help AVOID AN AUDIT
In 2014, the IRS audited less than 1% of individual income tax returns filed for the 2013 tax year. That’s fewer than in the past and may reflect lower agency funding and manpower. Still, it amounted to more than 1.2 million audited returns – about three out of four examined by mail and the rest involving personal interviews.
Although the prospect of an IRS audit may seem daunting, many queries can be resolved simply by providing additional information or clarification. Some audits result in no change or even a tax refund. Even so, most people would prefer not to receive a letter from the Internal Revenue Service. Here are some tips to keep in mind when filing your return.
Check your math and personal information. The IRS sent out more than 2 million math-error notices in 2014. Although a math error may not lead to an audit, it can call attention to your return. The same is true for entering incorrect personal information, such as the wrong Social Security number, or forgetting to sign your return.
File forms on time. Not surprisingly, missing a filing deadline often leads to a letter from the IRS (though not necessarily an audit). Remember that even if you file an extension, you must pay all tax due by the regular filing deadline or you will be charged interest.
Report all income. Other sources of income not reported on a W-2 form might include investment income, interest, royalties, rent, compensation as an independent contractor, forgiven debt, alimony, tips, gambling winnings, heath insurance reimbursements (for expenses deducted in a previous year), and proceeds from sales on online sites such as eBay. Many types of income are reported to the IRS by the payer (typically on a 1099 form), but even if income is not reported by the payer, you should include it on your tax return.
Use good judgment when taking deductions. Take all deductions allowed by law, but keep in mind that certain deductions tend to raise a red flag. Among the most common are home-office deductions, vehicle expense deductions, and high value charitable contributions. Follow all legal requirements and keep necessary records. If you claim self-employment business expenses, be sure you understand IRS regulations distinguishing a business from a hobby. And remember that there are more rigorous record-keeping requirements for higher-value charitable deductions
Find a good tax preparer. It’s generally wise to consult with a tax professional before taking specific action related to your taxes. The professionals at Fox Peterson are fully qualified to assist you with all your personal and business income tax and accounting needs.
Tax Penalty Relief. If you miss the April 18 tax return filing deadline this year and face penalties for late filing and late payment, see whether you quality for this one-time waiver before paying the fines. Under the IRS’s “first time abate” program, the IRS will waive the penalties for those who pay the tax due (or arrange to pay via installments) and who have complied with filing and payment obligations for the previous three years. The forgiveness isn’t automatic. You have to ask for it, either with a written note when you file your return or a written or telephone appeal after you receive a penalty notice.
Taking extra care when preparing your return may reduce your chances of an audit or other query from the IRS. The professionals at Fox Peterson are prepared to help you every step of the way.