Looking to Reduce the Risk of Tax Audit

While filing taxes, almost every tax payer has a fear of getting audited at the back of his/her mind. Even if they have employed an experienced and qualified tax attorney to plan and prepare their taxes, the stories they have listened about brutal tax audit make them scared. Some of things that need to be rechecked so that risk of getting audited can be reduced are: mathematical calculations, tax credits and tax relief that you have claimed and personal details such as name, social security number, address and contact details.

IRS focuses on payroll taxes and employment issues that include officers’ compensation, fringe benefits and officers’ classifications. If you really want to get rid of the risk of tax audit you should try to not make even single error while preparing your taxes. Knowing tax law is the best thing in this regard. However, tax law is being updated everyday by the experts. Therefore, coping up with the tax law is quite tough but not impossible. If you work day in day out with taxes then you will have tax law on tips otherwise it is recommended to hire a tax attorney. It is the best way to plan and prepare your taxes in professional manner that too in very less time.

Besides errors, excessive amount of tax deductions can also put you into the trouble of tax audit. There is a unique relation between your income and tax deductions. If your income increases, it is quite obvious that investment would increase consequently increase the tax deductions. However, if your deductions and income hike up drastically take a plunge like anything, you’ll be under the spotlight of the IRS’ systems. Moreover, if you are deduction exceeds your income, it’s obvious that you are trying to fake your deductions. For example, you are earning 50,000 bucks a year and claiming deduction of over 50,000. Practically this is not possible.

Auditing self employed taxpayers is quite common. If you are self employed, you should retain all of your receipts, bills and invoices for meals and entertainment. It helps you in claiming deductions without any difficulty as you would have proof of your expenses. Also, you should keep list of dates, purpose of your trip and location to claim travel expenses. Home office deduction can be claimed only by self employed tax payers therefore, you should use the space of your home for office strictly for your official work. IRS has complete authorization to visit your home anytime to check the accuracy of the percentage of the home you are using for official work.

If you are running a business where you need assistance of others, make sure you are classifying clearly whether they are employees or contractors. In case, you are showing lot of contractors but very less number or no employees, you are more likely to get audited as IRS will get an impression that you are trying to evade payroll taxes.