How to Avoid Being Audited by the IRS
Without a doubt, fear of being audited by the IRS is the biggest concern for every tax payer. It's what makes tax time even more stressful, especially for self-filing tax payers. Big as the fear may be, the chance of being audited is pretty small. In 1997, 1.66 million people were audited by the IRS; about 1.5 percent of all taxpayers.
Even knowing the slim chances of being numbered among that 1.5 percent, there are steps you can take to further minimize the likelihood of being audited by the IRS.
As tax returns start rolling in every year, the IRS uses a computer-based system to identify those returns that are most likely to contain errors. Most of the tax returns singled out for audit fall into one of two categories: They contain tax deductions that are too high when compared to the filer's income, or they contain errors or items that require proof or an explanation.
The first thing you need to be sure of is that you're filing your return carefully. Double-check the math and include any worksheets you've needed to fill out to claim deductions. Keep a folder for each tax year that includes receipts, a copy of your filed taxes, a copy of all your worksheets and anything else pertinent to the filing that year. If proof or explanation is requested of any item in your return, you can reference your folder and get the information to the IRS quickly - reducing the chance that an audit will follow.
Depending on what type or amount of income you receive, your profession and the types of transactions and deductions shown on your tax return, you may still be at a higher risk of IRS audit. Generally speaking, the more income you receive, the more careful you need to be to keep your records clean and straight. As your income level rises, so does your chance of being audited.
These factors will also raise the chance of being audited:
-Large amounts of itemized deductions
-Claiming tax shelter investment losses
-Large business expenses compared to income
-Complex transactions without explanations
-Claiming large charitable contributions compared to income