There are no hard and fast rules about exactly what triggers a tax audit, but mistakes and misinformation will certainly get the attention of the IRS. Use these tips as a guide to ensure you report your income and deductions as accurately as possible.
Here are a few tips to help you report your income and deductions as accurately as possible and help decrease your chances of being audited by the IRS.
1. Include All of Your Income
When your employer sends you a W-2, your employer also send a copy to the IRS, so make sure you include all of the information the IRS receives when preparing your return. The IRS compares the information from these types of forms with the information you supply on your return. “If these don’t agree for whatever reason, you may hear from the IRS,” says Greg Lemons, CPA and Owner of Padgett Business Services of Franklin, Tennessee.
It’s also important to report any cash income, such as tips. If you fail to report a portion of your income, you may be subject to hefty fines.
“You are required to report all of your income,” Lemons says. “Your return should always reflect your tax situation as accurately as possible.”
2. Double Check Your Math
Math errors can trigger an IRS audit. If you fill out and file your return yourself, using tax software can help you avoid the types of errors.
If you have anything beyond a simple return (i.e., you have more than two W-2s), you should consider hiring a qualified, licensed tax professional.
“People with one or two W-2s are generally a low audit risk,” says Andrew Poulos, Principal of Georgia-based Poulos Accounting & Consulting Inc. “But if you are a homeowner with multiple properties, property taxes, children, and retirement contributions, you should consider using an accountant or licensed tax preparer. The benefit of using one can outweigh the fees they charge.”
3. Keep Accurate and Detailed Records Related to Your Taxes
Prepare for an audit when you’re preparing your return. “I safeguard my clients by making sure they have all of their records in hand before they file,” Poulos says. “We don’t know what may or may not be deductible until we get the numbers down on paper and see what we have.”
If you're audited, you’ll need to prove that you qualified for the deductions you took. Always triple check that you meet all of the specific requirements for taking a deduction before you take it and keep supporting documentation for at least three years, the IRS suggests. For those who have had past issues with the IRS, such as missing or fraudulent tax returns, the IRS recommends keeping records indefinitely.
4. Be Specific With Your Tax Deductions
If you give any amount of money to a charity, you must obtain and keep a bank record or a written communication from the charity as a record of your contribution, and the written communication must meet certain IRS requirements.
If you claim a deduction of $250 or more, you must obtain and keep a “contemporaneous written acknowledgment” for the charitable contribution. This means you must obtain a letter or receipt that is dated on or before the date you file to take the deduction. The acknowledgment must meet other IRS requirements as well, including the fact that it must state whether the charity provided goods or services to you in exchange for your contribution and other information that substantiates the amount of your contribution.
If you claim a deduction for an in-kind contribution of more than $5,000, a qualified appraiser may need to prepare an appraisal in order for you to take the deduction.
Itemizing high-dollar, noncash charitable donations, such as furniture or clothing, may call attention to your return. Lemons suggests asking questions and obtaining documentation when you donate material goods.
“Agencies such as Goodwill and Salvation Army can supply guides to help you determine what the proper deduction should be,” he says. When filling out tax forms, use as much detail as possible when describing the items you donated.
Lemons also suggests that when you list any cash donations on your return, go beyond just giving a grand total. “You should actually list out each charity and show the dollar amount for each one,” he says.
5. Check Your Work on Your Tax Return
Be sure that all relevant Social Security numbers are correct and that the return properly reflects your individual income and deductions. “I would recommend doing this even if a professional does your return,” Lemons says. “At the end of the day, it’s your return, so make sure it is accurate in all areas before signing on the dotted line.”
For additional tax information, visit the Regions Tax Center.
