IRS Tax Audit – How to Stay Away From It

Tax audited is one of the scariest terms that you will ever come across in your whole life. Once start browsing through the internet to know the tips and tricks to prepare your taxes in a way that you don’t get into the situation where you IRS is ready to audit your tax filings. Now it is up to you how you use them while preparing your taxes. First of all, you should know about the recent changes in the tax law. It will allow you to stay away from the errors that you might make while preparing taxes under the influence of old tax law. You should also be aware of the Discriminate Index Function (DIF). This is a computer program used by the IRS to flag tax returns.

The program compares your deductions with all other tax filings that fall into the same tax bracket. DIF makes life of IRS agents easy by giving a computer generated score to every tax return. The score gives a probability about the questionable items that are there on your return. There are normal standards; if your filing deviates from those standards and the questionable items are very high in numbers then you are more likely to get letter for audit. One of the most common things that can bring red flag on your filing is tax deductions and tax credits. You should only file tax deductions and credits that you are entitled to.

In case, you are trying to reduce your taxable income by availing tax deductions and tax relief that you are not entitled to. You are more likely to find a red flag against your name. For questionable items you would need to send the explanation and/or documentation to prove that your filing and deductions were genuine. Best thing to avoid tax audit is that you should report all your income. This greatly reduces the chances to get under the highlight of the IRS computer programs. If you are thinking that IRS won’t come to know about your income; don’t underestimate the biggest tax collection agency in the country. IRS would come to know about your exact income form the information that is filed by the employers.

You might have filed itemized deductions. If they are very high in number as compared to your income it will not only captured by the DIF but IRS agents would also come to know about it. For instance, you have declared an income of $30000 however, claiming to pay $10000 in charity which is practically not reasonable at all. This will give a reason to the IRS agents to take a closer look of your tax return. There are businessmen who think their filing would not trigger the IRS. To some extent, it is true because people who are self employed and running office from their home they can reduce the taxable with home office deduction. However, it is very tricky and it might cost you your business; if IRS get to know that you are trying to play with the IRS.