Four Ways to Keep the Auditor Away

Four Ways to Keep the Auditor Away


As April approaches, taxpayers across the land have begun to shake. Despite the prospect of tax refunds and rebates, the specter of an IRS audit strikes fear into the heart of virtually any American. Here are some tips to keep the auditor far from your door.

Anyone in America who pays taxes, including many of the fine employees of the IRS, will admit that our tax system is extremely complicated. With myriad deductions, credits, forms, and loopholes, it's spawned a vast accounting industry, and an even larger government bureaucracy to process the entire mess.

Making things even more complicated is the fact that paying taxes is predicated on the honor system. The IRS is counting on taxpayers to be honest in regards to their deductions and overall return. However, the increase in the number of audits performed by the IRS during the past few years indicates that there'll be increased scrutiny of your filings. Here are some things you can do to avoid an audit.

1. Keep your expenses in line

The IRS tends to focus its audits on people who make six-figure salaries. Someone with a larger salary generally has more expenses. Owning rental properties or a small business, for example, can create a more complicated return. It makes more sense for the IRS to scour these returns for any errors, intentional or otherwise. If you have quite a few expenses, make sure they're honest and in-line with IRS regulations. Then you'll have nothing to hide if an auditor comes calling.

2. Watch your charitable deductions

A common red flag for an IRS agent is a huge charitable deduction on a return. It's uncommon for a person to donate 10 percent of his income to charity. If you approach that level, you increase the chances of scrutiny. Be especially careful if you're donating property, such as a car. A charitable gift of more than $5,000 will raise eyebrows at the IRS.

3. Don't allow your home office to spill into your home

Self-employed people who work out of their homes have been notorious targets for the IRS, particularly when it comes to home-office deductions. The IRS regulations regarding the deductibility of a home office are very specific. Consult your accountant before you write off that big screen TV as a business expense.

4. Be neat-or get an accountant

Sloppy tax returns are irritating to IRS agents, and are also an indicator that the person filling them out might have sacrificed accuracy for speed. Either you or your accountant should file a return electronically to improve your return's appearance.

As April 15th fast approaches, taxpayers are crossing their fingers in the hopes that an IRS auditor doesn't pluck their returns out of the pile. Instead of worrying, be proactive and limit the red flags commonly looked for. Adhere to the tips above, and you should enjoy many happy returns.