Friday, October 05, 2007
Have you ever been audited? If so, you know it was one of the most annoying and unpleasant experiences you’ve had to go through, requiring a great deal of effort and causing a great deal of stress.

Even if you’ve never been audited, chances are you don’t want to join the club. In an effort to prevent a first-time or repeat audit, here is a collection of 10 “secrets” people claim will help you dodge the audit bullet.

Though some are only popular rumors, when it comes to avoiding an audit they can’t hurt.
  1. Prepare your tax return using a computer tax suite. The IRS is more inclined to believe that computer-generated returns are free of errors than those calculated by hand. After all, if an audit does not produce any results, meaning mistakes by you, it has been a waste of IRS time.
  2. Refrain from using the online filing program that the IRS offers. Many believe that putting your name into the system directly and so quickly only increases your chances of having your name pulled for an audit.
  3. Request an extension even if you have your taxes prepared by April 15th. Some professionals in the industry claim that the IRS tries to fill an audit quota each year. They are more likely to meet their quota by pulling from the earliest filings.
  4. Avoid using pre-printed address labels for the same reason you should not use the electronic filing system that the IRS offers. You being first in line supposedly makes you more likely to get audited.
  5. Any unusual deductions should have evidence attached to the back of your return to avoid suspicion. For example, if you had your computer stolen, your home office burglarized or are claiming any other type of theft as a loss on your return you should attach a police report that references the incident.
  6. Never file your tax return late. You should at least file an extension as mentioned above. According to statistics, those that have late filings are more likely to be audited.
  7. If it can be afforded, have your tax return prepared by a professional for the same reason that using a computer suite is beneficial. The IRS knows that most CPAs and are much less likely to make mistakes on returns.
  8. Never write any ridiculous comments on your return such as “The IRS sucks” or “I hate taxes.” These are not amusing in the least to the IRS, and you never know - they may see this as an invitation to get a “special review.”
  9. Do not forget to include the new IRS form for reporting home office deductions on your tax return if it is applicable. They may see this as an amateur mistake and it may lead them to believe you have made crucial mistakes elsewhere.
  10. Keep good records and do not worry so much about an audit. Did you know that less than one percent of American tax payers will be audited this year?
Besides an audit, it is also good to worry about whether you are overpaying your taxes. Many inexperienced self-filers miss out on some of the deductions they are allowed. So as a follow-up to secrets to avoiding an audit, here are the top four most frequently overlooked tax deductions:

Educational expenses

It is almost imperative to have an education nowadays, and the government encourages this pursuit by allowing you to take deductions on tuition, textbooks, supplies, and other educational related fees so long as the classes maintain or improve your skills in your present occupation. This can apply both to self-employed and those that have an employer.

Volunteer expenses

Everyone knows that you can deduct charitable contributions, but many overlook the expenses that many charitable contribution takes. For example, you can deduct supplies, travel expenses, and even refreshments that you have donated to a valid charitable organization. Or if you have used your car in your volunteer work, you can deduct twelve cents per mile.

A warning: despite what some believe, you cannot deduct an hourly wage for time volunteered. That’s why it is called volunteering and not working.

Bad debt

If someone owes you money and you are having a difficult time or simply cannot collect the money from the individual you can file a deduction on it. The loss has to be based on the inability to collect the debt after having taken reasonable steps to resolve the issue. But make sure you reported any interest income to the IRS from the loan previously because if you attempt to write-off a loan that they have no record of you having ever given, they may want to have a chat with you (see the first 10 tips of the article to try to avoid this).

Casualty losses

If your property has been destroyed or even damaged you may be able to deduct part of the loss. Some examples include fire, weather-related catastrophes, vandalism, theft or even an accident.

10/5/2007 3:23:22 PM UTC  #    Comments [0]  |  Trackback
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