5 TIPS to AVOID an IRS AUDIT

First, take a deep breath. The odds of actually getting audited by the Internal Revenue Service (IRS) are pretty low (currently less than 1%). However, there are a few tips you may want to consider to reduce your chance of an audit even further. Also, it is important to be aware of certain triggers that significantly increase your audit chances.

1REPORT ALL of YOUR INCOME

One of the biggest red flags that will trigger an IRS audit is not reporting all of your income. The IRS has the ability to cross reference their records for any Form W-2 or Form 1099 that was filed by an employer or any other person/entity that paid you income during the year. This is also true for any interest or dividends you may have received, among other income sources. Therefore, the IRS can easily detect when your return does not match the amounts filed with the IRS.

DON'T MAKE MISTAKES or LOOK SUSPICIOUS

Make sure that you check all of your math for accuracy and always be neat and use whole numbers. Also, make sure you don't omit numbers that are required in the calculations. If the IRS cannot read your numbers or needs to presume certain answers, it may trigger an audit. Another thing to avoid as much as possible is using round numbers like $100 or $2,000 even. Of course, some round numbers will actually occur. You just need to be aware they may be scrutinized by the IRS.

Avoid Filing Amended Returns

Whenever you file an amended tax return, you are giving the IRS another opportunity to review and scrutinize. Further, it may cause the IRS to re-examine your original return to determine its accuracy. The bottom line is get your tax return filed correctly the first time.

E-FILING

2 3 4 5

BE AWARE IF YOU ARE SELF-EMPLOYED

Self-employed taxpayers filing a schedule C are at a higher risk of an audit. This is largely due to the IRS' perception that taxpayers claim deductions that are not warranted. Some of the bigger deductions to be aware of are the home office deduction, meals and entertainment, and business miles. You should certainly not be afraid to claim all valid business deductions in which you are entitled. However, you need to make sure that you have thorough and accurate records to substantiate all claimed deductions. Such records include receipts, ledgers and other documentation. Another thing to consider if you are self-employed is forming an entity such as a limited liability company (LLC). Typically LLCs are audited less often than taxpayers using a schedule C.

You can lower your risk of error that could trigger an audit simply by e-filing versus filing a paper return. The percentage of errors in e-filing is significantly lower than when filing by mail. Give yourself every opportunity to file a return without error to avoid the IRS having an opportunity to scrutinize your return.

JAMES R. MARING

This article was prepared by Jim Maring, an attorney with the Serkland Law Firm in Fargo, North Dakota. Jim holds degrees as a Master of Laws in Taxation from the University of Denver and a Juris Doctor from the University of St. Thomas School of Law. For more information, call 701-232-8957, email at jmaring@serklandlaw.com or visit serklandlaw.com.

This article should not be considered legal advice and should not be relied upon by any person with respect to his/her specific situation.