What Instigates a Tax Audit and How to Protect Yourself

What Instigates a Tax Audit and How to Protect Yourself

Tax audits are dreaded everywhere. When tax season arrives, with it comes the risk of a tax audit, which is a comprehensive analysis of a filer's tax returns to verify the information submitted. A review of personal or company taxes is not common, and most taxpayers may never have to go through one. Less than 1% of taxpayers are subject to tax audits and a good number of them sort out the issues without even having to meet with IRS agents. However, certain triggers can increase the chances of the IRS requesting a tax audit. Individuals and businesses must know these factors. 


Audit Triggers 

Incorrect filing of tax returns is one of the recurring causes for tax audits. Individuals and enterprises have to complete different forms when filing returns and the information has to be accurate. Figures that don't match existing records will raise suspicion. If your returns are missing a form or some information, the IRS may be inclined to check the rest of the data you have provided. Rounding off amounts is a mistake that a lot of people make. Approximating to the next Dollar is not usually a problem but rounding off a few dollars can be misinterpreted. If a tax deduction was $195, don't write it as $200. 


Eliminating the Risk of an Audit 

Be meticulous when filling out your tax returns to prevent mistakes. Precision is everything, so don't compromise it at any point. Make certain that you report all sources of income. If the returns are for a company, ensure that losses or profits are reported properly. Keeping all your receipts is the easiest way to avoid mistakes when filing taxes. Another is to file them early. Working on returns hurriedly can lead to sloppy errors that can trigger an audit. Filing your taxes online can also decrease the risk of mistakes especially when it comes to tabulating amounts. 

A tax audit can be an inconvenience that can end up attracting hefty fines, so find out how to avoid it.

Date: 14 September 2018, 10:09 am
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