Being on the receiving line of an Internal Revenue Service agents phone call or mailing informing you that your tax returns are being audited is a nightmare that millions of Americans have undoubtedly had. A tax audit can turn an otherwise quiet life upside down and cause undue stress on an individual and their family. An audit can be triggered for a variety of reasons, but many of them are easily avoidable. There's no guarantees when it comes to who the IRS decides to audit, there are some simple things to keep in mind if you don't want Uncle Sam rummaging through your files.
1. Check and then recheck your numbersThis sounds like a no-brainer, but it's very important to make sure your numbers add up. This is one of the most common, and most preventable, reasons an individual is audited. It's important to make sure you have all of your paperwork
before filing your taxes. The IRS provides a great checklist on their website to help make sure you know exactly what you will need before filing this year:
Tax Form Checklist2. Be honest...about everythingI get it. It's really tempting to claim a deduction that will lower the amount you owe or increase the amount you get back, but you should really think twice before doing so. Claiming too many deductions is a big red flag and will bring your return under greater scrutiny.
One of the biggest red flags is claiming your clothes and furniture you donated at the price you purchased them. Sorry to break it to you, but those pair of denim jeans you donated are no longer worth $50 in the governments eyes. That expensive couch and love seat you donated to make way for your newly purchased furniture can't be appraised at the price you originally paid for it. The same goes for any clothes, jewelry, cars, or anything else you donate. You must claim the price that a typical thrift store will sell it for, not what you personally believe it's worth.
It's also important to be honest in how much money you earn. If you are a private contractor or small business owner and your numbers don't add up then that's a surefire way to make yourself stand out to the IRS. You should just operate under the assumption that you won't get away with even the most basic of lies, no matter how trivial you might think they are.
If you are a small business owner or private contractor, then this one is for you. Don't mix business with pleasure! You can't take that vacation to Las Vegas and then claim it as a business expense if there was no business being done. You also can't take friends out for a high end meal and claim it as a business expense. Another very important thing to be aware of it the home office deduction. There are specific requirements the IRS says you must meet to be able to qualify for the home office deduction, which you can read
HERE.
And last, but definitely not least, your hobbies are not tax deductible. Just because you own a horse doesn't mean you get to tell the IRS you're a horse breeder and just because you really enjoy woodworking doesn't mean you're a carpenter. If you are only doing something for fun then you can't claim it as a deduction. That's just a hobby and the IRS frowns on people who attempt to write off hobbies.
As you can see, being thorough and honest are the two best things to help make sure you don't have to go through an IRS audit. If you have any other questions about what you can claim or documents you need before filing then visit the Internal Revenue Service's website at
http://www.irs.gov/