Avoid a Tax Audit with these tips

Posted by Bruce Mc on Jul 7, 2008 in Form 1040 Information, Opinions, Taxes, Things forgotten | 1 comment

Being audited really isn’t the worst thing in the world if you are totally honest when filing your taxes. Should you be audited and it is found that you have made an honest mistake, don’t panic. You might be penalized with affordable fines or merely told to correct the mistake. The IRS rarely burns those who practice honesty and caution when filing their taxes. By following the below advice, however, you may never have to find out for yourself.

1-Hire a Trusted professional

Some of us prefer to do our taxes without help and that is fine when things are uncomplicated. Services like TurboTax allow many of us to file taxes in under an hour without a problem. However, those who are self-employed often have a lot of paperwork to deal with. Hiring an accountant, bookkeeper or tax preparer can help you to prevent any mistakes.

2-File Every Year, No Matter What

Can’t pay your taxes in full this year? That is okay! The IRS will work with you through an extension plan. One of the biggest mistakes made by the self-employed when April rolls around is not filing because they can’t pay what they owe. Always file, no matter what. Contact the IRS about your money situation and they will let you pay out the taxes. This results in some penalties, but that is far better than the alternative.

3-Report Your Full Income

One of the reasons why the IRS watches entrepreneurs so closely is because it is easier for them to underreport their income. If you are a freelancer who occasionally takes small gigs with no paper trail, don’t think you can neglect this income when filing your taxes. Finding inconsistencies is what the IRS does best and they will eventually catch up to you.

4-Don’t Get Too Creative With Deductions

There are usually two types of income tax filers who are self-employed:

1) those who are too scared to make deductions because they don’t want to be audited
2) and those who deduct everything under the sun with reckless abandon.

Don’t be either person! You should be able to make deductions, as they are there for your benefit. However, you need to make sure you legitimately qualify for each one.

5-Document Everything

One of the best ways to prevent mistakes is by having all necessary paperwork handy when you file. This is also your best defense against penalties should the IRS ever come knocking on your door. You see, a lot of deductions really can be a red flag to the IRS. If you can back up each one, however, you are perfectly within your right to claim those tax breaks. Back up everything and keep those documents in a safe, organized place.

 If this wasn’t any help then look for my post Wednesday July 9th,  ”Audit Insurance“