So what can you do to keep
the IRS from noticing your return? Below find hints and suggestions to
keep the IRS away! These tips are particularly relevant to those in the
US, though other tax systems may be similar -- check with your
accountant for details. And please note that the information provided
here should by no means be used as a guide to filing your taxes! These
are merely suggested tips and hints. Be sure to seek professional advice
in taxation, as in all businessmatters.
Six Steps to an Audit-Free Tax Return
1. Be Careful With Deductions
The IRS's favorite target is the home office deduction. In order to
qualify for a home office deduction, your office needs to be your
"principal place of business " and used "regularly and exclusively" for
business . In plain language, this means that your home office needs to
be the place where you spend most of your time and make the majority of
your income.
You'll also need to keep your personal life out of your home office. For
example: a trick that I heard the IRS sometimes uses is to ask the
taxpayer being audited "Do you use your computer for 50% personal and
50% businessor 5% personal and 95% business ?" If you answer 95%
business , you have flunked the test -- the answer needs to be 100%
business . This example demonstrates the strict enforcement of the
guidelines for the home office deduction. We'll talk about this more in
Home Office Deductions for Freelancers.
You also need to keep other deductions that you want to take to a
reasonable level. Keep a receipt for all deductible expenses, especially
food, entertainment, travel, and auto costs. These are often the
deductibles that are most scrutinized by the IRS. You should also keep
expenses in a log, along the following information:
The name and location of the expense
Amount paid
Date and time
Company the expense was incurred for
If an entertainment or food expense: the person you entertained or dined
If an entertainment or food expense: the discussion you had
2. Where You Live Vs. Your Income
If you live in a very high-income area, but you only claimed that you
earned $15,000 that year, this is a red flag for an audit. The IRS will
want to know how you spread $15,000 out to pay all your bills. Unless
you live with your mother who pays the mortgage or rent, there's no way
that you could survive in Aspen on this income... and the IRS knows it!
Also, if your income is much lower than last year's taxable income, this
IRS will wonder where you're hiding the money, and will want to
investigate.
3. Avoid Inconsistencies
If there are inconsistencies, the IRS will catch them. Be sure to file
the same information on your federal taxes that you filed on your state
returns.
4. Don't Make Mathematical Mistakes
If the IRS's computer system catches mathematical mistakes on your
forms, a person will take a look at your returns personally. This is
more attention than anyone wants spent on their tax forms, so make sure
your math is correct before you file.
5. File a Neat Return
I recommend typing up or "efiling" your returns. If your returns are
hard to read, you might have to translate your returns over the phone or
in person.
6. Report All Your Income
It sounds like common sense, but some people are tempted to be
dishonest. Your clients must issue you and the IRS a 1099 when you are
paid over $600. This means that the government knows what you were paid
on each job. Report the right amount on your taxes to avoid an audit.
Related Articles:
Cut 2004 Taxes
7 ways to cut 2004 Taxes
Tax Return Preparer Fraud
IRS Advice for Last Minute Tax
Filing
Tax Tips-Last Minute Filers
Tax Filing
Requirements
Avoid IRS Tax Audit
This article first appeared
HERE. |
