It’s that time again, Tax Filing Season! And with it come endless questions and articles about how to avoid a costly, nerve wracking, and time consuming audit from IRS. In my many years of dealing with IRS exams it is apparent that you cannot bullet proof any tax return from selection, but there are a few simple steps you can take to lower your odds of having any entanglements with “The Man”.
1) Don’t make any mistakes. Many tax returns are selected because they are patently wrong to the casual observer. Clearly inappropriate deductions, math errors, incomplete forms or missing schedules all cause IRS computers to hit the reject alarm and increase your chances of an inquiry.
2) Disclose the Details. Attach supporting schedules with as much relevant info as necessary (but not unnecessary data) that gives a reviewer a good picture of the source of your deductions. Large amounts labeled “Miscellaneous” or other nondescript terms will only create suspicion and focus attention on your return.
3) Match those 1099 forms. Be very diligent to include all your 1099 income in the appropriate category. List them out in detail. IRS is very effective in matching these forms to your return and if they have a problem doing so the response will range from simple letter correspondence up to an audit.
4) Don’t be greedy. Pigs get fat but hogs get slaughtered. If you are way out there with your deductions and present a picture that seems unrealistic, chances are that IRS computers will recognize this and want to ask you to explain things. Claim what is correct, not what you think you can rationalize.
With a little bit of diligent work up front, you can go a long way towards preventing a major hassle and possible expense later.