How to Prevent an IRS Audit
A number of people are generally rather scared 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 horrible they may appear to be. Both individual tax payers and businesses or companies can be audited anytime by the Internal Revenue Service. Fortunately, the IRS audits only about 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 first step is making sure you declare all of your income completely, regardless of what source you get it from. IRS guidelines clearly indicate what is required to be reported on a tax return of employees, independent contractors and business entities. Even cash or tips earned also have to be declared and included in your tax return to avoid IRS problems. Ensuring that you have all the needed documentation is yet another good thing to do. Every employer you work for is obliged to provide you a W-2 or a 1099 that reports the amount you have earned from the previous year during the time spent working at that particular company. Make sure that the entries on your W-2 are the same as those in your tax return. It is always a great idea to keep the paperwork and have it readily available so that you have the ability to prove everything that you have written on your tax return. Also, be certain that your return is free from math errors. This type of errors is easily checked and will definitely be pointed out by the IRS. So take the time to check the computations on your tax return. See to it that the correct entries are inputted in the correct lines of the tax forms. The IRS assumes that a sloppy math computation means a sloppy filling out of the other areas in the tax return. A usual mistake among self-employed business owners and contractors is their declaration of a home office. To qualify for the associated deductions, a home office should only be utilized for business purposes. Simply claiming a home office will often bring your tax return to the attention of the IRS. Since this is the case, you may want to make sure that you have a solid case against any issues they may have so that you don’t end up having a big IRS problem. For instance, if you often work in your dining room, that does not mean that it can be considered a home office. Personal possessions must not be kept in your home office and personal activities like parties and social gatherings must not be conducted there. In addition, not more than 20% of your home should be declared as home office. There are several known methods and tips that you can utilize to avoid being audited by the IRS. Though it may seem like the government is against you and you can’t adequately battle an audit, just remain calm and don’t forget that there are certain steps you can take to protect yourself. After all, you do not want to have a major IRS problem with the IRS when the same can be dealt with early on.
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