How to Avoid Tax Audit Triggers

It’s tax season again. That means another round of audits will soon be scheduled for those who slipped up (or who the government thinks slipped up) on their returns. If you want to avoid this testy tax-time surprise, be aware of the following audit triggers:

  • Earned income credit. A high dollar refund would prompt the Internal Revenue Service to question whether children claimed are really dependents.
  • A home office. A red flag would be raised if you have high deductions in comparison to earnings, home depreciation, or withholding.
  • Innacurate W2 forms. Make sure to double check your W2 forms. Glaring mistakes might make the IRS do the double checking for you.

Other red flags would be tax shelter losses and unreported income on 1099 forms. In order to avoid a tax audit, make sure to maintain accurate records. Track all of your expenses and get documentation and proof for everything. For example, if you make a large donation to a church, make sure to get a statement on official letterhead, verifying your donation. Be aware that if you make a charitable contribution of more than $250, the IRS requires appropriate documentation.

Know that not all mistakes and red flags will result in an in-person audit. If you make a minor mistake or something you reported needs a little more clarification, the IRS will usually send a paper or correspondence audit. For example, a larger charitable deduction or a large itemized deduction may result in a paper audit.

For more information on your rights as a taxpayer, visit the IRS website and click on “individuals” and “taxpayer rights.” You can also refer to the IRS video series entitled, Your Guide to an IRS Audit.

For more tax advice, see…

10 Ways to Save Money on your Tax Return

Surprise! The IRS Counts Forgiven Debt as Taxable Income