Preventing an IRS Audit

A tax audit is dreaded by many mainly because those who have experienced the process shared horror stories about their experience. The painful reality is although several of these stories are sound horrible and outrageous, some of them are true. Individual tax payers and business entities can be audited at any time. Statistics suggests, however, that only approximately 1.5% of all tax returns in the United States are ever made to undergo this process yearly. This is because there are several precautions that can be taken to reduce the chances of being audited.

The most important thing to remember is to report all of your income completely, regardless of where you get it from. IRS guidelines clearly state what is required to be reported on a tax return of employees, independent contractors and business entities. The simple earnings such as tips also have to be declared in your tax return to avoid IRS problems.

Another good tip in avoiding an IRS audit is making sure that you have the proper documents available to be able to prove everything that you have listed, should it be necessary. One example is your W-2 or the 1099, which is provided by your employer and which reports the amount you have earned in the previous year while employed in that particular company. Recheck as well that the numbers in your W-2 are the same as the entries on your tax return.

You also want to make certain that you review your tax return for math errors. This type of errors is easily checked and will definitely be seen by the IRS. So take the time to check the computations on your tax return. See to it that the correct entries are placed in the correct lines of the tax forms. The IRS presumes that a sloppy math computation means a sloppy filling out of the other areas in the tax return.

Most business owners and independent contractors make the mistake of thinking that their home offices are used strictly for business. Because certain guidelines regarding home offices are outlined, simply claiming your house as a home office causes problems. The guidelines include not keeping personal possessions and not conducting personal activities in the home office. Also, you must not declare more than 20% of your home as home office.

The IRS presents many methods and tips in avoiding an audit. Although at times you may feel that it is difficult to effectively battle an audit, you just need to be calm and be assured that there are certain steps you can take to protect yourself. After all, you do not want to have a major IRS problem with the IRS when the same can be settled early on.