How to Avoid an Audit on Your Tax Return

If you’re worried about Uncle Sam taking an especially close look at your tax return, you’re not alone. It’s only natural to feel uneasy about an audit when you’re tallying your financial records.

The good news is your chances of an audit are slim.

On average, only about 1{7bd3c7ad8bdfca6261de5ca927cd789e17dbb7ab504f10fcfc6fb045f62ae8d5} of all individual returns filed during the previous three years (2006, 2007 and 2008) were audited. Roughly 36{7bd3c7ad8bdfca6261de5ca927cd789e17dbb7ab504f10fcfc6fb045f62ae8d5} of the returns audited were selected because of an earned income tax credit (EITC), a tax credit for certain people who work and have low wages.

Of the 1.36 million individual farm returns with gross receipts from farming in 2008, only 0.5{7bd3c7ad8bdfca6261de5ca927cd789e17dbb7ab504f10fcfc6fb045f62ae8d5} were audited. In comparison, audit rates for nonfarm business returns (by total gross receipts) were: under $25,000, 1.2{7bd3c7ad8bdfca6261de5ca927cd789e17dbb7ab504f10fcfc6fb045f62ae8d5}; $25,000 under $100,000, 1.9{7bd3c7ad8bdfca6261de5ca927cd789e17dbb7ab504f10fcfc6fb045f62ae8d5}; $100,000 under $200,000, 3.8{7bd3c7ad8bdfca6261de5ca927cd789e17dbb7ab504f10fcfc6fb045f62ae8d5}; and $200,000 or more, 0.6{7bd3c7ad8bdfca6261de5ca927cd789e17dbb7ab504f10fcfc6fb045f62ae8d5}. Percentages decreased over FY 2007 in each income category.

The IRS maintains a table of average deductions for each income group. When your “score” exceeds this computer-generated average, your likelihood of an audit increases. (As you can see in the statistics above, returns with higher incomes also come under scrutiny more often.)

Although there’s no way of knowing the exact range the IRS uses for your income bracket, there are several ways you can protect yourself.

  • Keep everything neat and organized. Make sure you can clearly read your information and be certain to use the correct forms.
  • Report all income. Include every W-2 and 1099 form you receive because the IRS automatically gets copies from your employer(s).
  • Make sure business expenses and home-office deductions are legitimate. If you’re not sure about a deduction, talk to someone familiar with tax laws – and save your paperwork.
  • Clarify anything unusual. Offer explanations and even documentation for any items you believe might raise red flags with the IRS (e.g., drastic changes in income, large losses, extensive charitable contributions, etc.)
  • Double-check your return. Confirm your personal information is correct, your numbers are accurate, your forms are signed, and the records on your state and federal returns match.

Of course, your best defense against an audit is honesty. But also keep in mind the IRS selects a certain number of people each year to audit completely at random.

So if you’re still nervous about getting everything right on your return, don’t hesitate to contact an accountant with your questions or concerns.

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