One of the most feared pieces of paper is the letter notifying you of an IRS audit. While most people will get through this process without fines or other consequences, the reality of having an outsider comb through your finances is a stressful one. All it takes is one mistake, even an innocent one, in the past six years to open up the frightening possibility of fines or even tax court. If you want to avoid an audit – and who doesn’t – know and avoid these four IRS audit triggers.
1. Stretching Your Deductions
You have probably heard speculation that certain write offs trigger audits. The speculated areas include home office deductions, certain types of losses, and sole proprietorship deductions that look suspiciously like hobbies. You should take every deduction for which you qualify, but make sure each is completely defensible and well-documented. Make sure you can back up each penny with documentation. Stretching deductions beyond what is believable or reasonable is a top way to get an agent on your case.
2. Disclosing More Than Necessary
The IRS is fairly clear about which documents they want. You should give them these and not a single piece of paper more than that. Attaching extra documentation is a classic rookie mistake. You might think you are making the situation clear, but the opposite is true in this age of computers. Anything that does not fit neatly into the IRS algorithm will require human eyes, and those human eyes might catch a detail that makes them look more closely.
3. Elementary School Math Errors Are Common IRS Audit Triggers
This is a no-brainer that can’t be re-stated often enough. Simple arithmetic errors are responsible for a surprising amount of IRS audit triggers. Use a computer program to complete your return and then double check the math by hand. An addition mistake is a huge red flag to the IRS and very easy to avoid.
4. DIY Returns
A college kid or young adult without assets can certainly file a return without professional assistance. However, there are people who should never attempt their taxes alone. This group includes entrepreneurs, hobbyists turned proprietors, people claiming losses that deeply affect their tax bill, and anyone writing off any part of their home as a business expense. If your taxes require endless schedules and other documents, get professional help. Not only will it help you to avoid an audit, but it will also save most people a great deal of cash in the long run.
