Despite the odds being greatly in their favor, many American taxpayers remain in real fear of an audit. The inconvenience and stress of having your tax returns closely scrutinized by the IRS is something everyone wishes to avoid, and to aid in that effort, the professionals at Rosenberg Martin Greenberg offer a series of handy tips to help keep returns off the agency’s radar.
One of the most notorious, yet easily avoidable, audit triggers involves error-ridden data entry during the process of preparing a return. Simple typographical errors in tax software interfaces can lead to gross misstatements of income and deduction amounts, causing the IRS to take a closer look. The best way to prevent this from occurring is to conduct a thorough double check of each entry, ensuring accuracy each step of the way. Doing so will keep the agency’s automated systems from flagging discrepancies resulting from unintentional mistakes.
Resist the temptation to exaggerate your generosity
The practice of making charitable donations to worthy causes is something the IRS wishes to incentivize, and that is why deductions are available for charitable giving. However, it is important that taxpayers not get carried away when determining the deductible amount of the donations they have made in the prior year. Broadly speaking, the IRS will not bat an eye if a donated item is valued by the taxpayer at no more than 30% of the price originally paid. If a deduction of more than $5,000 for a single donated item is claimed, it is necessary for the taxpayer to have a documented appraisal to support the valuation. Being forthright about the true deductible value of charitable contributions really can keep individuals out of IRS crosshairs and auditors at bay.
Report all income received
For those whose income streams are varied and not always well-documented, it can be tempting to omit certain sums from inclusion on the yearly tax return. However, this is a risky strategy and can lead to serious and costly attention from the IRS. While exclusion of income may work in some isolated instances, there are a number of ways in which the agency can detect the deception and initiate an audit. For instance, if you fail to report cash payments received in exchange for services, you may escape an audit initially, but the customer who paid you may not be so lucky. As a result, the transactions from which you benefited may therefore be brought to the auditor’s attention, causing your filing to come into official question.
Make e-filing a priority
According to statistics from the IRS, taxpayers who take advantage of the agency’s electronic filing services can further reduce their risk of the sorts of errors known to spark audits. Paper returns have error rates exceeding 21 percent, while only 0.5 percent of e-filed returns are characterized by potentially attention-grabbing mistakes.
When in doubt, consult a tax attorney
The likelihood of experiencing a tax audit is quite rare. Even those who are identified for extra scrutiny often face nothing more significant than a correspondence audit conducted by mail. However, there are always instances each tax year in which businesses and individuals are subjected to a comprehensive look back at their finances and returns, situations in which the guidance of an experienced tax attorney can prove invaluable.
If you need assistance with this year’s tax filing process, are facing an audit of your personal or business returns, or wish to engage in strategic planning to minimize liabilities going forward, the team at Rosenberg Martin Greenberg is ready to help. For a confidential consultation, contact us today.
Additional tax audit resources
- Internal Revenue Service, IRS Audits, https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits
- Internal Revenue Service, The Examination (Audit) Process, https://www.irs.gov/uac/the-examination-audit-process