How Do I Avoid an IRS Audit?
There are some things in life that you simply can go without experiencing. Compound fractures, deep knife wounds, the expiration of loved ones. Oh, and IRS audits would probably sit top on that list for the majority of people, unless you are a sadist and enjoy excrutiating pain. The IRS audit, or “examination” as they have now reclassified it, is about as painful as getting a gangrenous appendix ripped from your insides without the benefit of anesthesia. So, in an effort to save your client from this horrific ordeal, Pronto Education would like to offer a few tidbits of advice as to how to assist the taxpayer in the avoidance of this treachery.
The Irs conducts a few different breeds of audit. Audit one is the most obvious, in which a taxpayer is reporting absurd numbers that benefit their overall tax bill tremendously, and subsequently they get called out on their seedy activities. Then there is the random audit, which is not a direct representation of the taxpayer’s frivolity but more than likely the computer just drawing out of the unlucky lotto. These people are in effect just randomly selected and audited at will.
The audit that you can avoid is the one that we will focus on, because the random audit is something you cannot circumvent. It’s analagous to jury duty, meaning if it happens it happens and you are stuck in the middle of it, whether you like it or not.
So unless the taxpayer has intentially misrepresented their tax situation, your client has nothing to worry about if you get audited. Except for having the IRS breathing down your neck, in your office, and eating your lunch while you work to please them and their increasingly invasive demands for days on end. There are methods to avoid this type of pain.
Fill out IRS Forms in Entirety and On Time
The most rudimentary method in skating around the possibility of an IRS audit is to complete all of the relevant IRS forms in full, and then file those forms on time. If you fill out forms incorrectly for your client, and on top of that they are filed late, the taxpayer is looking for trouble, and you and your client will be subsequently exposed. You are essentially jumping into the San Francisco Bay and giving yourself a deep cut with a razor blade. At that point don’t expect the sharks not to swarm, you asked for it through your lackadaisical efforts. Be sure to advise your client in previous years to have all of their income and expense information organized and ready to go before you go to your accountant, other wise you risk the possibility of IRS “Examination.” That is like tieing your shoes too tight before you go through a TSA checkpoint. Don’t make it more difficult than it already is.
Beware of Audit “Niches”
There are some areas of a tax return that are more likely enhance the chance of audit then others. Some of the most basic ones would be the claiming of dependents by the taxpayer that are dishonest and completely ineligible to the taxpayer, as the individual attempts to get the monetary benefits of claiming dependents on their return that they are not permitted to. Here’s another one… Claiming school expenses on the Form 8863 when the taxpayer was never in school. The American Opportunity Credit allows for up to $2,500 of the first $10,000 of qualifying school expenses to be refunded back to the taxpayer. If the taxpayer never received a 1098-T and has no evidence to back their claims for school expenses, which the IRS in turn receives their copy of the same numbers, then you can count on the risk of audit increasing significantly.Claiming an exhorbitant amount of mileage on the IRS add on Form 2106, for work mileage accrued, can also increase the potential for an examination. The home office deduction, in which a taxpayer can write off some expenses from their work from a home office, is also a heavily scrutinized aspect of taxpayer deductions for the IRS.
Should I Keep My Receipts for IRS?
If you are claiming deductions on the Schedule A or Schedule C, or E for that matter, it is essential that you keep an accurate record for these expenses. Although bringing these in to your accountant in a nike shobox is unnecessary and may actually frighten him, it is important for you to keep these receipts and records for yourself. You will need them if you ever get audited by the IRS. And if you have the papers to back up your expense and deduction claims, then you will only have to deal with a few days of IRS scrutiny. However, if your claims are not backed by accurate and concise records, your torture could tentatively continue for years into the future, and will not relent until you have made good on your forever compounding debts.