Nobody enjoys being audited by the IRS. It’s a time-consuming and frequently stressful procedure. However, there are ways to make your tax return audit-proof indefinitely. Here are five pointers to get you started:
1. Maintain accurate records. Receipts, bank statements, and other documentation fall into this category.
2. Avoid taking unnecessary risks. This includes avoiding shady tax shelters and dubious deductions.
3. Be honest. Don’t make up false deductions or income.
4. Avoid falling victim to scams. Many dishonest tax preparers are out there waiting to take your hard-earned money.
5. Always pay your taxes on time. If you do all these things, the IRS will have no reason to audit you.
Even small business owners can be audited, especially if they make multiple changes to their tax returns or file returns for the first time.
The IRS has the authority to audit a business at any time, but it is more likely to occur during tax season. An audit can be conducted by mail or in person, and an IRS agent may visit your place of business. If you are audited, don’t freak out. All you have to do is be ready.
Check to see if you have any prior-year tax returns. Record all business expenses incurred during the period in question. Ensure that your records are well-organized and easily accessible. Take careful notes on everything you discuss with the IRS agent. The IRS has the authority to audit a business at any time, but it is more likely to occur during tax season. An audit can be conducted by mail or in person, and an IRS agent may visit your place of business.
Why Should You Audit-Proof Your Tax Return?
Audit-proofing your tax return is one of the most important things you can do to keep more of your money. Some tips:
Tip 1: Maintain Accurate Records
Keeping good records helps audit-proof your tax return. This includes keeping receipts for any expenses you intend to deduct and any other documentation that may be useful if you are ever audited.
Tip 2: Understand the Rules
Because the IRS has many rules and regulations, you must educate yourself on what you can and cannot deduct. Understanding the rules for deducting expenses and reporting income is also critical. This will assist you in avoiding mistakes that could result in an audit.
Tip 3: Don’t Forget About State Taxes
State taxes are another issue. Even if your only activity is online, you must file in every state where you have a business presence or income. Failure to file a state tax return can result in significant penalties.
Tip 4: Don’t Forget About Other Expenses
Many people overlook other expenses that can be deducted, such as the cost of equipment and supplies.
Tip 5: Don’t Forget About Incentive Programs
You can deduct education costs from your taxes. Contributions to an IRA or 401(k) can also result in a tax break.
Tip 6: Your Tax Return Is More Than Just a Form
You are not required to do your taxes. The tax return you must file is more than just a form; it is also a legally binding document. Your tax return errors can cost you. Get help.
Tip 7: Get the Most Out of Your Tax Refund
A tax refund is similar to receiving an interest-free loan from the government. It can pay down debt, save for a large purchase, or spend on necessities. If you have debt, repaying it with your refund is wise. However, if you have debt and want to use the money for something other than debt repayment, consider getting a secured credit card. It’s a simple way to build credit while earning rewards.
Tip 8: Put Your Tax Refund Into a Savings Account
If you aren’t paying off debt with your tax refund, consider saving it. Check out my list of the best high-yield savings accounts. You’ll earn interest on the money and have easier access to it later.
Tip 9: Keep Your Tax Refund For Future Emergencies
While paying off debt is an excellent reason to use your tax refund, consider saving it if you have an emergency fund. Put your tax refund into savings or invest it if you have the money and don’t need a break from work. Learn how to start an emergency fund.
Tip 10: Don’t Use Your Tax Refund to Make a Large Purchase
If you buy something big, don’t use your tax refund to pay for it. You should be able to save that money or find another way to pay for it without using your tax refund. If you can’t, it’s time to reconsider your spending habits.
The Dangers Of a Tax Audit
The IRS audits ensure taxpayers accurately report their income and pay taxes correctly. While most audits are conducted via correspondence, some taxpayers may be chosen for a face-to-face audit.
Many factors can trigger an audit, including reporting a high income or claiming numerous deductions. Even if you haven’t done anything to raise red flags, you could be chosen randomly for an audit.
The IRS will examine your tax return and supporting documents if you are audited. They may also enquire about your earnings, expenses, and deductions. The audit process can be stressful and time-consuming, but it’s critical to remain calm and work with the IRS agent.
Some taxpayers may be subjected to an in-depth audit known as an examination. The IRS chooses which returns to examine based on information provided by third parties such as employers, banks, and other government agencies. If the IRS determines that you owe additional taxes, you must pay the amount due plus interest and penalties.
If the IRS suspects that you omitted income or claimed incorrect deductions, they may choose to audit your tax return. If you are selected for an examination, you will be notified in writing and given a date to appear in person at an IRS office.
Exam audits can be stressful, but you must work with the auditor. Additional information, such as financial records and receipts, may be requested. Be truthful and thorough in your responses to ensure a smooth audit. The audit could take weeks or months to complete.
If the auditor determines that you owe more tax, you will be issued a bill for the difference. Pay this bill quickly. The IRS will take collection action if you don’t pay. This may include levies on your bank account or wage garnishment. Contact a tax pro if you have questions about the audit.
What if I disagree with the findings of the auditor? You have the right to challenge the auditor’s decision. Follow the steps in your notice to appeal. Appeals are handled by an IRS office located outside your state. The IRS will not consider additional information unless it is submitted within 90 days of your notice of deficiency date. If you don’t follow procedures, your appeal may be denied.
What if I don’t receive a notice of audit? Check with your tax preparer to ensure your return was filed on time. If you disagree with the auditor’s findings, you should consult with a tax professional to assist you in preparing your appeal.
To file Form 886-A and complete the appeals process, you have 90 days from the date of the auditor’s report. If you filed on time but disagree with the auditor’s findings, a tax pro can help you appeal. If not, file Form 4868 to request an automatic extension of time to file your return.
How to Prevent a Tax Audit
IRS audits can be stressful, time-consuming, and costly. Nobody wants to be audited, but there are some things you can do to reduce your chances of being chosen. Here are tips to avoid the IRS:
- Make sure that you report all of your income. Because the IRS has ways of tracking income, it’s not worth attempting to conceal it. You’ll face penalties and interest if you don’t report all your income.
- Keep your deductions consistent. If you take the standard deduction one year and then begin itemizing deductions the next, it will raise a red flag. The IRS may also scrutinize taxpayers with many deductions compared to their income.
- Keep accurate records. The IRS will scrutinize taxpayers who fail to keep accurate records of their income and expenses.
- Make no out-of-the-ordinary deposits or withdrawals from your bank accounts. The IRS may want to know why you made an unusually large deposit or withdrawal from your bank account.
- Make no significant deposits or withdrawals from your bank accounts. You may not be required to report deposits or withdrawals from your bank account of $10,000 or more. However, the IRS will ask why you make these large deposits or withdrawals.
- Do not provide your bank with false information. The IRS will find out if you lie to your bank about the reason for a deposit or withdrawal.
- Do not provide the IRS with false information on your tax return. The IRS will investigate if you claim a large bank deposit or withdrawal deduction.
- Do not provide false information to anyone who inquires about your bank account. You could face criminal charges if you lie to another government agency, such as the Bureau of Alcohol, Tobacco, and Firearms or the United States Customs Service.
- Do not conceal funds in foreign bank accounts. The IRS has programs to assist taxpayers who want to pay their taxes but are afraid to do so. Furthermore, the IRS can and does pursue taxpayers who do not file or file late.
- Make no excuses for not filing a tax return (for example, I am not an American citizen, I do not have a Social Security Number, etc.). The IRS will consider your claim fictitious if you are not a citizen and have not filed a tax return.
- Make no excuses for not paying your taxes. Even if you are bankrupt, the IRS can collect taxes from you. If you’ve already identified a tax issue, it’s time to fix it. Call the IRS or visit our website for more information.
What Should You Do If You Are Audited?
Don’t freak out if you’re an unlucky few who get audited by the IRS. This can be simplified. First, gather all of the documentation requested by the IRS. Bank statements, receipts, and canceled checks are examples of such documents. More organized returns make it easier for IRS auditors to spot errors.
Then, when you return, be prepared to explain any unusual items. For example, if you have a large business expense deduction, be ready to show proof that these expenses were incurred. The auditor may also question your income, so bring your W-2s or 1099s.
Finally, remember that the auditor is simply doing their job. Many auditors are pleasant people, and being courteous and cooperative will make their job easier.
Obtain a Refund Estimate
Even if you know you’ll owe money to the IRS; you should still file your taxes. If you expect a refund, use a tax estimator online. After entering all the information, you can estimate your IRS refund.
This tool calculates Social Security and Medicare taxes. You can then choose whether to put more or less of your refund into these categories. If you have extra money after taxes, save it. You can put this money towards debt repayment or into a savings account.
The IRS also has a website to see if you are eligible for tax credits. The e-file Eligibility Verifier website can help determine whether your situation qualifies you for certain credits. One of the most difficult decisions people make when filing taxes is whether to hire an accountant or do it themselves. While hiring an accountant can be costly, you may find it worthwhile.
If your tax situation is simple, you may be able to handle it on your own.
Doing your taxes is a difficult and sometimes overwhelming process.
However, using the right tools and following these tips can make the process much easier.
How to Audit-Proof Your Tax Return Indefinitely
A tax defense is the best offense. Having everything in order before filing can help you avoid an audit. Start with these tips:
- Collect all your documents and records on your income and expenses for the fiscal year.
- Check that everything is correct and complete. This entails going through your records with a fine-toothed comb to ensure everything is in order. W-2s, 1099s, receipts, bank statements, and anything else that may be relevant are all acceptable.
- Keep detailed records. This entails keeping track of any changes or corrections you make to your records and explaining to them if necessary.
- Prepare to respond to questions. The IRS will question your return. They will almost certainly ask you about the information you have provided.
Your Income Tax Return
When you have finished filling out your tax return, it is time to file it with the IRS. You can file by mail or online. If you choose to file electronically, you must sign it before sending it to the IRS via the Internet.
Filing Your Tax Return Via Mail
You can mail your tax return on paper. To accomplish this, you must first:
1. Prepare and sign your return. With the return, please include copies of all forms and schedules (attach them to Form 1040).
2. For your records, make a copy of your signed return.
3. Make a copy of your return for anyone who assists you in preparing your tax return.
4. Send the tax return to the IRS. Use a postcard instead. Form 1040, Form 1040A or Form 1040EZ includes the address.
5. If you are filing a paper and an electronic return, submit the paper return first.
6. On your return, check the appropriate box(es) to indicate whether you are filing a paper or an e-file return.
7. Check the box indicating whether you have a balance due or an overpayment if you file a paper return. On your return, there will be a line for you to enter the amount.
8. Mail your return to the IRS in an envelope (not the SSA).
9. Follow the instructions on your software if you file an e-file return.
You will need to know your Social Security number and your filing status.
10. If you are filing a paper return, write your SSN and filing status at the top of the form. If filing separately, enter only your SSN. If filing jointly, enter your spouse’s name and SSN.
11. Sign your return.
Follow these four steps to audit-proof your tax return and reduce the likelihood of an audit:
- Report all income.
- Take advantage of all eligible deductions and keep good records of your expenses.
- File electronically to reduce the chances of errors.
- If you are self-employed, consider hiring a professional to help ensure that your return is accurate and complete.
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