How Not to Get Audited

Posted on: April 12th, 2010 by

CPA - Rockville, MDThere are a few not so smart ways to attract an audit or other unwanted scrutiny from the IRS.  This tax season, the IRS is gearing up to initiate and intensify its audits of individual taxpayers.  But, never fear, there are steps you can take, or rather, not take to minimize your chance of an audit.  A lot of this is very simple as well.  First, make sure all the 1099 forms you received for dividends, interest, and other investment receipts are reflected somewhere on your tax return.  IRS computers have gotten much better at matching the copy of the 1099 sent to the agency with your return, notating any omissions.

Second, if you are claiming large deductions for gifts to charity, make sure you meet all the necessary paperwork requirements.  This includes, have a receipt or letter for each donation, no matter how large or small, as well as a letter of acknowledgment for any donation over $250.  A canceled check simply does not make the cut as proof.  Also, to the IRS, $1953.12 looks a lot more real on a deduction form than $1950.  Deductions ending in a bunch of zeros are not your friend.

Last year, the IRS issued a manual to its agents about how to look for and recognize hobby losses.  Taxpayers have been attempting to write off their fun and game activity for years, illegally.  They label them as businesses and claim them as a loss for self-employment.  Any self-employment loss on Schedule C is asking for an audit, especially if the activity, or loss looks like fun.

If you are going to use a tax preparer, make sure you use a reputable accountant.  The IRS is aware of dodgy tax preparers and keeps tabs on them (even though they won’t admit to doing so).  Be wary of accountants/CPAs who base their fees on a specified cut of the refund, claims to get you bigger refunds than others, or makes any suggestion to claim credits that you are probably not entitled to.

Lastly, and yes, it seems like the biggest no-brainer of them all, do not run around shooting your mouth off about how you put one over on the IRS.  The IRS is now authorized to pay big bucks to people who tattle on you.  This could land you fines, penalties, and even a period of incarceration.  I would recommend to just hire a reliable accountant to take care of your taxes, especially if you don’t have the proper program or patience to sit down and do them correctly yourself.



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