Audit Flags and How to Avoid Them
At some point in your life it is likely that you will have at least one IRS audit on your income taxes as a business owner or when working self-employed. You can minimize the chances of getting one but you should always keep proof of all your business earnings and expenditures every year and keep them for at least six years afterwards. This is considered as good accounting.
Tax returns will be flagged by the IRS computer if it seems that your deductibles are too high. There is also a random selection process, which you will not be able to do anything about. However, you can prevent yourself from being put into that category for the random selection by keeping note of all your business spending. Another reason why you could be flagged is if your income is paid through cash.
Problems with the math are often a reason why people are selected for audit and you could help yourself by having an expert do the tax accounting for you. Of course, if you do it all yourself, you will need to make sure that you add and subtract correctly.
You will also need to make sure that interest is added up right and that the documentation is filled out correctly. Always, always, always double check your documentation whether you think it is right in the first place or not.
You will need to report the numbers to the IRS and on your tax forms correctly so you should ensure that these numbers match completely. This will always bring up the red flag if they do not and it is up to an auditor to find out why they do not match. You should fill out your 1099 form completely and verify all of the amounts that you are filling in.
You need to be aware if you do business in cash. This is harder when it comes to accounting tax because there is very little documentation. It tends to pull up the red flag very quickly and will have the auditors knocking on your door. You also run more of a risk if you are self-employed or run a small business.
You should always watch who you talk to about your tax, especially if you are avoiding it illegally. People who call the IRS about you are able to receive 30 percent of the money that is collected off of you at an audit, which can be a large amount if you have been avoiding tax for a number of years. Avoiding tax is illegal and should not be done but if you are doing it, just do not talk about it.
To really avoid an IRS tax return audit, you should report all of the income that you earn and look into the legal ways of avoiding paying tax. There are a number of them out there. If you do have an accountant, they will be happy to share some of the best ways of saving money and earning more profit that you can keep hold of.
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