The new year isn’t very old, but it’s not too early to think about your 2017 taxes. This year’s deadline for filing — April 17, 2018 — will be here quickly. The following six tips can help you avoid the dreaded IRS audit this year.
1. Neatness Counts
The refrain of your elementary teachers who always emphasized neat penmanship comes in handy when it comes to satisfying the IRS. When preparing your return, use blue or black ink and focus on printing neatly and clearly. Try to avoid smudges, crossed-out words and sloppy handwriting.
If possible, prepare your tax return using a computer. Not only will doing so ensure that it is neat in appearance, a computer-generated return is less likely to raise the suspicions of the IRS staffers who decide who to audit. Consider using one of the many computer programs available these days to complete your taxes.
2. Ensure Accuracy
While turning in a return that’s messy is bad, an even worse red flag that puts you on the radar of those IRS staffers mentioned above is one that is inaccurate. This means that all of the numbers that you use on your return must be added, subtracted, multiplied and divided correctly. If you use a computer program, this math computation is completed for you automatically so there’s no chance of any incorrect values getting on your return.
It’s important to remember that when it’s processed, your return is loaded into the computers maintained by the IRS. These computers will then check your return for any errors including those noted above. If their computers note that your return contains math errors, the IRS staffers might wonder about your other numbers as well. Make sure that you go over your numbers one final time before you turn in your tax return.
3. Where You Live Matters
This might be out of your control, but where you live could help determine if your tax return is audited more often — or even at all. In fact, the rates of being audited can differ greatly from state to state and even between cities and towns within the same state. Nevada taxpayers, for example, were audited four times as often as those in Wisconsin during a particular period of time.
If you have some flexibility concerning the address you use to report your taxes — perhaps you own more than one home or you travel a great deal — it makes sense to do some research to determine if one area has a lower rate of auditing than the other. If you find that there is a difference, consider making the lower one your address for reporting your taxes.
4. Use Actual Numbers
Avoid the temptation of rounding your numbers significantly. Using $2,000 when the actual figure is $1,853 is an indication to the IRS that you didn’t keep good records because you’re estimating numbers. Instead, use the correct and actual amounts that can be backed up by your records.
5. Don’t Rush to File
According to the IRS, filing an extension has no bearing on if the agency audits your return. In spite of this official stance, many tax professionals advise their clients who might otherwise come to the attention of the IRS to file an extension. Typically, this advice is to file an extension until the latest deadline which is October 15.
Of course, waiting to file your taxes is easier to do if you aren’t owed a refund. It’s also important to remember that if you do file an extension, it applies only to the paperwork. If you owe the IRS taxes, this money is still due on April 17, 2018. You’ll want to pay by that date if at all possible so that you can avoid the penalties and interest the IRS levies against those who don’t make their payments by the deadline.
6. Be Cautious with Schedule C
If you must file a Schedule C form — Profit or Loss for Business — that includes a loss from a small business and your primary source of income is from W-2 wages, the IRS auditors will take notice. This is because in order for such losses to pass muster, they have to comply with both the “hobby loss” and “passive loss” rules.
While these tips are no guarantee that Uncle Sam won’t audit you, following them makes it less likely that you’ll receive an ominous letter from the IRS.
Regards,
Ethan Warrick
Editor
Wealth Authority
