Advice on the Avoidance of IRS “Examination”
How very nice of the IRS to “Examine” our records. I am sure they are just looking out for our best interests. You know, similar to a doctor’s examination. Just checking all our working parts to make sure there is nothing catastrophic taking place. Well, I wouldn’t be so sure that is the case. The IRS has now kindly reclassified and renamed their notorious audits with a connotation containing a tad more gentility. The “Examination.” Well, a pig is a pig, no matter what you call it. The audit is a dreaded part of life, and it can happen to even the most meticulously diligent of taxpayers. Lets discuss the ways for you to avoid getting bit by the great white IRS.
Before we even go into the best ways to safeguard yourself against the IRS examining you, lets just look at the likelihood of you being singled out. If you make less than $200,000, the odds of you getting hit up and questioned by the IRS are 1 and a 100. The odds have gotten less favorable for you as the government has become increasingly despondent and is currently turning over all of their couch cushions and searching for any money they may have missed, due to the current state of the economy and their corresponding desperation. In essence, there is no fool-proof way to elude an audit, because the IRS computers could just randomly select you. There are ways to not offer the IRS an open invitation, however.
Schedule Cs are victim to increased audit risk, and for obvious reason. The business owner has much more wiggle room when it comes to dodging the tax man, from their freedom to report income to their wide ranging availability of deductions. It is very important for you, if you are self-employed, to be extremely careful with your use of deductions such as the home office deduction or claiming erroneous and exorbitant vehicle mileage. Also, incorporating you business may be an appropriate choice, considering that Schedule Cs are ten times more likely to be audited than those businesses that have been incorporated.
Earned Income Credit Availability
When preparing your taxes, or having someone prepare them for you, be diligent in your determination of your eligibility for the Earned Income Credit. In 2012, the EIC paid out over 27 million taxpayers to the tune of 62 BILLION. So you could understand why the IRS scrutinizes returns claiming the EIC credit heavily. The credit is at it’s most valuable when you are claiming qualifying children on the tax return. So be sure, when claiming a dependent, that you qualify as their caretaker and guardian for tax purposes.
The IRS audit can be one of the most painful experiences a person goes through in their life time. However, getting through an audit can leave you stronger on the other end, and hopefully not lighter in your pockets upon it’s completion. The key is to be able to avoid the IRS examination all together, and if you have to experience the hardship, at least have the records and receipts to back up your claims for deductions.