How to Avoid an IRS Audit
As we all mail off our 1040s and come to the conclusion of another tax season, a thought that is often on the back of our minds is whether or not our tax return will be flagged for an IRS audit. Naturally, an audit is feared by most people simply because of the drain, and because it puts you in a position where you feel you are targeted.
If you sit back and think about it, in essence audits are in place in order to ensure that each person correctly and honestly reported information on his/her tax return. That is really the extent of an audits purpose: nothing more and nothing less. Therefore, if you were an individual who reported your information in the approved manner and additionally, you kept good verifiable records to back up the information on your return, you have nothing to keep you up at night.
Through the years, our professionals at Dallo Law Group have noticed some distinct areas that seem to draw the attention of the IRS auditors. Carefully consider the following factors when it comes time to file your annual tax returns.
Be on the Lookout
- Errors: It probably goes without saying, but it is very important that all information on your 1040 is free from errors. Double check the digits in social security numbers as well as spelling of names, which should exactly match what is on yours and your dependents’ social security cards. Make sure your filing status is the correct one out of the five available:
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow(er) with dependent child
Finally, always ensure the math computations are accurate. E-filing helps in catching many of these kinds of errors; however, ultimately, it is your responsibility to check your work thoroughly.
- Failing to report foreign bank accounts: In simple terms, all United States citizens and resident aliens of the nation are taxed on all worldwide income. It may have crossed your mind that your bank account in Europe is minuscule, but if you do not report the interest earned in it, you may be putting yourself into some serious trouble. With the offshore bank account crackdowns that have been put in place in recent years, discovery of foreign assets by the IRS is rather certain. Therefore, to decrease the likelihood of an audit, properly report them on your return.
- Omission of income: The rule to remember when reporting your income on your return is that much of this information the IRS already has. Consider such areas as your W2, bank interest, stock trades, and mortgage details. All the agencies involved in the transactions that come to you from these places have already sent in their records to the IRS. Therefore, your job is to make sure your numbers match up, and you do not exclude anything. Missing information, due to an honest error or otherwise, can bring on a messy audit.
- Charitable contributions: In order to avoid your charitable contributions sending a red flag to the IRS, get into the habit of keeping well organized with documentation. When you send donations to charitable organizations, they are required to send you an acknowledgment that they received your gift, which includes the date and amount (or items given). This paperwork should be safely filed away. In case of an audit for charitable contributions, all you need to do is supply the IRS with document copies to back your figure.Every year, we all feel some level of arduousness in filing our tax return. Even more tolling is the dread that you may receive an IRS letter for the paperwork you just submitted. Although there are no sure bet strategies that can have you avoid being audited, the tips given here can eliminate many red flags that might trigger one. Furthermore, if you have kept good records that can back up the information you submitted on your return, you have little to worry about.
If you are in receipt of an IRS Notice of Audit, there is no need to panic just yet. It is important to remember that even though you may feel that you have been accused of a wrong doing, you do have rights. Although some audits can be straightforward, there are a good many of them that require in-depth investigation and numerous correspondences.
Dallo Law Group has been retained on many occasions to represent individuals in income tax audits, particularly those that are in-office. Our professionals, who are both CPAs and tax attorneys, specialize in this field and can assist you through the whole process. Feel free to contact our offices at 619-795-8000 to discuss how we can help navigate through the audit process.