While audits are uncommon, most Americans would prefer to avoid them entirely. According to the IRS, the percentage of audited persons is relatively low, although it has gradually increased since 2008. If the IRS decides to probe your corporate partnership or individual taxes, there isn’t much you can do about it. You may, however, lessen the likelihood of being singled out for this scrutiny by following the above tips.
1. Check Your Figures
When somebody provides you with a tax document that discloses income, like a 1099, that information is likewise reported to the IRS. The IRS will want the figures in your tax form to match those from third parties. When there is a disparity, the IRS will notify you and may audit your return.
If the numbers don’t add up, your tax return may draw unwelcome scrutiny. Mistakes are common, so double-check any details you include on your return as well as your calculations. Consider hiring reliable Parkland, FL accountants or using a tax preparation program that will handle the calculations for you.
2. Maintain Good Records and Disclose Expenses and Income Accurately
If you maintain all of your business revenue and costs in a company bank account and save your business spending receipts, you will reduce your chance of an audit. Not only does this make it simpler to complete your tax return, but you’ll also have everything you need to back up your return if you’re ever audited.
Remember that attempting to conceal revenue or overestimate costs increases your audit risk. While rounding to the closest dollar is acceptable, rounding off to tens or even hundreds may give the IRS the idea that you’re just making up figures.
3. Reasonable Deductions
Auditors may be suspicious of unrealistic or unusual itemized deductions for corporate partnership or individual taxes. For instance, taking a charity tax deduction of 40% of your overall income may cause the IRS to raise an eyebrow.
If you’re a sole owner and submit Schedule C, which outlines earnings and company costs, claiming losses for more than three years may prompt an auditor to ask for proof that you’re in business. It’s important to understand what constitutes a legal tax deduction if you’re filing deductions on Schedule A. Commuting to your usual workplace on a daily basis, for instance, is not an acceptable deduction.
4. Take Caution When Using Independent Contractors
Businesses with a high proportion of private contractors to workers are more likely to be audited because utilizing independent contractors might be a means to avoid owing payroll taxes. The IRS has specific rules governing who can be classed as a private contractor and who should be categorized as an employee. Ensure that you understand and obey the requirements, and if in doubt, seek business advice from reliable Parkland, FL accountants or a lawyer.
If you compile and submit your own returns, double-check each line for any problems. However, if you’re confused about the earnings, you should declare or the deductions you may claim, it’s always a great idea to consult a tax professional.