8 Ways to Avoid a Tax Audit

Completely avoiding tax audits is impossible, but there are certain ways to significantly lower your chances of getting audited by the IRS. Although there’s a small chance of getting audited, it’s still necessary that you take every precaution, since nobody likes dealing with the IRS.

Understand Their Selection Process

“The IRS doesn’t just randomly choose which people they’ll audit. Instead, they have a selection process based on a computer program known as the Discriminant Income Function. This program compares your deductions to other people who are in your income bracket. Because of industry averages and common expenses, it’s best that you reduce any expense that stands out. In order to avoid any problems with the IRS, it’s recommended that you have documentation to back up deductions,” says tax advisor Sean Daei.

It’s worth noting that some people are more likely to get audited than others. More specifically, people who’re in a cash business or who usually keep their own books are more likely to be selected for an audit.

Provide Complete Information

The worst thing that you could do is hide something from the IRS. Make sure to answer any questions and include all of the required information when you’re filling out forms. If the IRS notice that some information has been left out, they will get suspicious and might choose to audit you.

Check Your Math

Even though this may sound like an obvious step when you’re filling out forms, many people fail to check their math and end up making mistakes on their tax returns. However, keep in mind that one of the first things the IRS will look at is your math. Since it’s easy to notice when the math is not right, this is one of the easiest ways to increase your chances of getting audited. Make sure to triple-check the math, and especially the first two pages of your tax return.

Avoid Filing Certain Forms or Schedules

It’s best that you avoid filing certain optional forms and schedules. For example, if you decide to turn your hobby into something more and show a business loan, then the IRS will probably start wondering if certain deductions are legitimate. Although you can avoid them for the first five years of your business by filing the Form 5213, you’ll almost certainly get audited as soon as those five years pass.

Avoid Round Numbers

You shouldn’t use round numbers on your tax returns because the IRS will almost certainly get suspicious. After all, what’s the chance that someone bought exactly a thousand dollars worth of office supplies in a given year? One of the best things that you can do in order to avoid getting audited is to be as accurate as possible. Make sure to always keep receipts to reduce the chances of an audit.

Don’t Take Excessive Travel and Dining Expenses

Taking a deduction for travel, dining, and entertainment expenses is completely normal, and you should absolutely do it. However, it’s recommended that you remain aware of the industry you’re in and your income level before you start spending more money than you should. If you have a small business, then there is no need for you to be going to a fancy restaurant every day and golfing each weekend. On the other hand, it’s completely normal to have a lot of expenses if you’re a sales rep that is always on the move.

Answer Every Question and Fill In Every Line

Knowing how to fill out your tax return will help you avoid any unnecessary tax audits. Keep in mind that you should always fill in every line and answer every question. Sometimes, the IRS will want to audit you simply because you left some questions on your tax returns unanswered.

Include Explanations

In case you think that your tax return might seem suspicious to the IRS, you should include additional worksheets, forms, and other paperwork that can explain certain inconsistencies.

Adam Richards

About Adam Richards

Adam Richards is a semi-retired business professional originally from Bangor, Maine. He spent the majority of his career in sales and marketing where he rose to the marketing lead of a Fortune 1000 company. He then moved on to helping people as a career counselor that specifically helped bring families to self-sufficiency through finding them rewarding careers. He has now returned to Bangor for his retirement and spends his free time writing. This blog will be about everything he learned throughout his career. He'll write on career, workplace, education and technology issues as well as on trends, changes, and advice for the Maine job market and its employers.