7 Ways to Avoid Getting Audited

The words “IRS audit” sometimes elicit images of agents in suits knocking loudly on the door, ready to go through your finances with a fine toothed comb, eager to arrest you for the least mistake in paperwork. Well rest assured, the IRS generally doesn’t show up at your home (at least not unannounced). But audits are alive and well, and if you can help it, you should avoid them. Fortunately, there are some simple steps to preventing audits or to minimizing the pain if one happens, most of them based on honesty and accuracy. Here are seven ways to help you stay out of trouble with the IRS.

1. Claim all your income, including cash. Don’t forget where you’ve made money, how you made it and how much you made! If you omit income but the company or person who paid you claims it, you are more likely to get audited.
2. Add, subtract, multiply and divide…correctly! The IRS will pick up on discrepancies and could interpret them as an attempt to hide income or assets.
3. Sign your return. Did you know tax protesters are known for not signing tax returns? If you don’t want that label, be sure you sign on the line!
4. Be honest about charitable donations. The IRS knows how much someone in your income bracket is usually able to donate, and they know how much donations are typically worth. Don’t try to put one over on them. (The Salvation Army has a list of values for gently used clothing, furniture and household effects in your geographic region.)
5. For businesses: don’t lose money more than three years out of five. The IRS will either suspect you of making false deductions or having a hobby as opposed to a business. Hobbyists cannot write off business expenses. If you do lose money more than three years out of five, don’t panic. If you have books and records to support your income and expenses and you can show that you are taking actions to improve your bottom line, you will be okay.
6. Don’t claim business use of an automobile without filling out Form 4562. As soon as the IRS sees you claim a business vehicle, a flag goes up to check the validity of the claim. First, keep a log of your business mileage and be sure to record your beginning and ending odometer reading so you can report the correct percentage of business use. Make sure you are filling out all the forms necessary to make the deduction.
7. Report foreign bank accounts. Foreign banks have been more forthcoming as of late, and you don’t want to be accused of trying to hide money. There are special rules and forms if at any time the aggregate of your balances in foreign bank accounts is $10,000 or greater. See your CPA about the FBAR.

While you do want to prevent audits, you should not be afraid to take deductions when you are entitled to do so. A good CPA can help you avoid errors in your tax filings as well as in your documentation, should you actually get audited. For more information, contact Myerson & Myerson, CPA’s at (703)753-1040 or info1@mandmcpas.com.

Because you care to send the very least!