A number of people are generally rather afraid of a tax audit. Those who have undergone an audit have circulated horror stories, which many of them are true – no matter how outrageous and terrible they may seem. Both individual tax payers and businesses or companies can be audited at any point by the Internal Revenue Service. Fortunately, the IRS audits only approximately 1.5% of all the tax returns in the United States as certain precautions can be taken to lessen the chances of being one.
The most important thing to remember is to report all of your income in detail, regardless of where you get it from. No matter if you are an employee, an independent contractor or a business owner, the IRS guidelines clearly state what is required to be reported in a tax return. The simple earnings such as tips also need to be declared in your tax return to avoid IRS problems.
Another good tip in avoiding an IRS audit is making sure that you have the pertinent documents available to be able to prove everything that you have listed, should it be necessary. The W-2 or the 1099, which is prepared by your employer and which reports the amount you have earned in the previous year while employed in that particular company, is among the examples of these documents. Verify as well that the numbers in your W-2 are the same as the entries on your tax return.
Another simple yet equally important tip is ensuring that there are no mathematical errors in your tax return. The IRS is quick to spot this kind of errors as these are very easy to check. You have to double check that the correct entries are in the correct lines of the tax forms. The IRS often believes that when the math is calculated in a sloppy manner, the same is done to the other areas of the tax return.
A usual mistake among self-employed business owners and contractors is their declaration of a home office. The IRS requires that your home office is distinctly used only for business in order for it to qualify for the associated deductions. Simply claiming a home office will often bring your tax return to the attention of the IRS. Because of this ensure that your case is solid to avoid any issues pertaining to the entries in your tax return. For instance, if you often work in your dining room, that does not mean that it can be considered a home office. You should not keep personal possessions in your home office and personal activities such as parties or other social gatherings must not occur there. Additionally, not more than 20% of your home should be declared as home office.
Although it may seem that the government is against you and you can’t adequately battle an audit, certain precautions are available to avoid one. It is also important to remain composed as you are aware that you can take these precautions to protect yourself. After all, you wouldn’t want a tiny glitch in your tax return to cause you more inconvenience, would you?