The words “tax audit” makes everyone weak in the knees and can be a serious frustration, complete with the IRS requesting more details and clarification regarding your tax return. There is some good news, though. Overall, the chance of a tax audit is fairly low. As a matter of fact, less than 1% of all individual income tax returns are usually examined. While you can’t eliminate your risk of audit, you can take some steps to reduce that risk and the chance that you will owe additional tax, penalties or interest if your return is examined.
- Double check your numbers. Data entry can be tricky, and it’s better to be safe than sorry. Take time to check and re-check your figures. It seems simple, but often, filers are in a hurry, on a deadline, or just careless. One way to prevent careless mistakes is to make sure you have all the documents, statements, and reports that you need before starting your return. Then, ensure that your numbers match throughout your return and agree to your records.
- It pays to be honest. Being truthful on your tax return is the best policy. Be realistic when reporting your income, deductions, and credits. If you choose to be dishonest, you are playing with fire and risking civil and criminal penalties. Take the high road, report all of your taxable income and be sure to have documentation of all your deductions. Simply guessing at these numbers can raise a red flag and is, more importantly, the wrong way to prepare your return.
- File electronically. The IRS states that filing returns electronically can dramatically reduce errors, which can lower the odds of an audit. One problem with submitting a paper form is that it is several times easier to make mistakes. Another is that it is more difficult and more expensive to obtain proof of filing. More taxpayers each year are filing electronically . . . Go ahead and jump on the bandwagon.
- Over-document. Document all deductions thoroughly. For example, if you were very generous with charitable donations, be sure you have evidence (a written acknowledgment from each done) to prove your donations. Deduct every dollar allowed, but be smart and have the evidence to support your deductions.
Need help with your tax return? The Crisler CPA team is here to help you. Contact us with any questions you may have or if you would like to get the process started.