Anyone Can be Audited
There is no way you can avoid tax audits, nevertheless, there are few factors that might trigger tax audit and bring you under a second-time scanner of the Internal Revenue Service. Some of these triggers include not reporting all your income, charitable contributions, expenses that you incur on your employees, vehicle as well as rental expenses. If any of the above mentioned expenses raises a cause of concern or some kind of doubt, you can be an eligible candidate for tax audits. Here are steps you can take to avoid a tax audit.
Use a Licensed Tax Professional
Select an able tax professional to prepare your tax file. Studies conducted by the National Taxpayer Advocate states that 60% of the tax payers hire the services of a tax expert to prepare their papers for return. And this holds true even more for businesses. If the IRS finds out that you are claiming refunds and have included deductions in returns that you are not eligible for, you are a perfect candidate for tax audit. Remember when you choose tax professional, it is important to check their credentials.
Declare All of Your Income
It is best to declare all your income to the IRS. Also when you do so, double check what you have filed and check for discrepancy. If you are careful now, you may be able to avoid tax audit later. As far as dates of receiving any payment from your client is concerned, mention the exact dates. For instance, if you have received payment from your client in the month of December, but it was due in November, mention the same. It is best to be clear from your side. This is more important, especially for the freelancers, independent contractors, and sole proprietors.
All Forms Should be Properly Filed
It is crucial to make sure the all tax forms contain the correct information and are filed properly. The information you provide has to be clear, authentic, and most importantly, complete. The forms should have all questions answered clearly without overwriting. Also fill in the schedules correctly. Add the code number of your business wherever necessary. Don’t overlook these minute details. Give brief explanation wherever there is an omission or an addition.
Don’t Deduct Questionable Expenses
Steer clear of deductions that may raise doubts. While it may be difficult for you to ascertain as to which deduction or refund may trigger a tax audit, use your best judgment. In the even you cannot determine the validity of a deduction, it is best to seek guidance of a tax professional who has been in this business for several years and has an experience to handle these questions and also has an idea as to which deductions and refunds may actually serve as an alert for tax audit.
Avoid Errors and Keep Payments Current
Errors may cost you an arm and a leg. Make sure when you enter numbers, letters, or any detail, they are all correct. Any erroneous number, letter or word may make you a candidate for tax audit. So, pay the closest attention to details at all cost. Last but not the least, be honest when you file your tax returns and take the tax issue seriously and try never to fall behind on your payments and do so religiously every financial year. Taking these steps, as well as the others mentions, can certainly help to avoid audit.
