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To Avoid An Audit Completely
avoiding audits, while still claiming significant deductions, is a tax
professionalís and income tax filerís dream. Of course, we all love to dream
about ideal occasions, like when our favorite sports team wins, or when our kids
get the lead role in the school play, or when we finally get the big break at
the office, or when we can avoid an audit completely. That doesnít mean that
these dream days donít happen, though.
are a few things to make sure you are currently doing to help yourself avoid the
ever present and lurking danger of an IRS audit.
sure that any third-party income and reports agree with your records.
sure you have selected the correct forms and schedules to fill out. Ask
yourself: Do the forms apply? Am I stretching the situation? Are there
credits that I am entitled to whose forms I havenít included but need to?
track of bank deposits so that all items will be easy to trace. Write the
source of check directly on the deposit slip, especially transfers between
accounts, so that these are not inadvertently counted as income. The first
thing tax auditors request are your checking, savings, and investment
accounts. They then proceed to do a total cash receipts analysis, comparing
the total to the gross income shown on your tax return. By marking every
deposit slip, you know where to look for further documentation to support
your notation and the auditor will have the trail in front of him or her for
the source of the unusual nontaxable receipts such as insurance recoveries,
loans, gifts, and inheritances. Surprisingly, itís not that much work and
is worth the effort.
keep your checking and savings accounts free of irregularities. Be sure you
can explain large bank deposits and increases (especially sudden ones) in
your net worth. WARNING: If you
have unreported income of more than 25% of your adjusted gross income, the
auditor may turn your case over to the CID. If you suspect this may occur,
do not provide any leads to the auditor regarding the sources of the
unexplained deposits. The burden of proof is on the IRS. You do not have to
provide leads that make their job easier.
your business and personal accounts separate.
you know you are going to take a business deduction, pay for it by check.
the proper time to file. IRS computers are not programmed to review only
those returns received before April 15th. So who is to say that
late returns, those filed after April 15th, wonít be audited,
or will be audited less than returns mailed earlier?
thorough. Donít leave out any information. Sign where you are supposed to.
your total deductions with your income. Extensive deductions that add up to
a substantial portions of your total income are audit flags.
A Final Word On Meetings With Your
better your accountant understands the tax code the more aggressive he or she
can be. A good accountant will make
you ďaudit proofĒ while being extremely aggressive with your business
deductions. A good accountant will
also save you thousands of dollars a year and give you the security of knowing
that all your deductions are legally defensible.