Every year IRS audit hundreds and thousands of businesses and taxpayers every year. You could have heard about several things about how you would be selected by the IRS for audit. However, no one has ever confirmed what is the exact procedure followed by the tax authority. Therefore, rather than wasting your time while trying to know the procedures of IRS, you should concentrate on preparation of your taxes so that IRS won’t find any reason to audit you. There are few things that you need to take care of and you will be able to stay away from the mess of tax audit.
One of the major reasons of falling prey to the IRS systems is silly arithmetic mistakes. Once you are done with the filing, you should double check the calculations to ensure that everything is correct. It is understood that calculations of the tax return is quite boring. So, you can ask someone else to go through the calculations once again. It slows to find errors with fresh eye. Once you are done with the filing, it would go through the checking procedure by the IRS systems. If there are multiple errors in income and expenses, you tax return filing will get flagged in the system and could lead to tax audit.
Another thing that can keep you away from tax audit is correct information about tax credit, deduction and tax resolution. If you overstate your deduction, you are more likely to get caught by the IRS systems. Moreover, supporting documents are also required to prove that the deductions you are claiming are genuine. Your income tax bracket will be used to evaluate the relative deductions. For example, you have yearly income of $75000 and you are claiming child care credit for $10000 and charitable contributions of $35000 which is quite not possible. Therefore, declare only those deductions and credits that are genuine and for which you have valid proof.
At times, taxpayers try to hide their income to reduce their taxable income. However, if you understate your earnings, be ready to find letter for audit from IRS in your mailbox. IRS keep close on the filing of taxpayers who earn mostly in cash or those are into service oriented professions. If you think you are getting paid in cash, IRS would not have any clue how much you are earning; then you are wrong. Why? It is because the client who is paying you in cash would be deducting this amount while preparing their taxes. “Self employed taxpayers” is the favorite clan of IRS. If you are a self employed tax payer, you should retain all invoices, bills and receipts of the amount you have paid on meals and entertainment. While claiming home office deduction, you should claim deduction for the space that you are using for strictly for your business.