Gary Bode, CPA: tax audit avoidance is always better than being audited. But if you need IRS tax audit representation, please consider calling us at (910) 399-2705.
IRS tax audits can’t always be avoided. The IRS selects some returns randomly to help establish statistical baselines for internal benchmarking. Luck of the draw, can’t be helped. But there are things you can do to help avoid a non random tax audit while preparing your return.
Explain Unusual Items on your Tax Return
The IRS uses statistical analysis to red flag returns that fall outside normal limits. When we think something might trigger a red flag, we get the facts and then explain it proactively on the return to proactively avoid a tax audit.
Let’s say make $30,000 a year and in the past 10 years you’ve never itemized deductions. But this year, you donated $200 each to 50 different charities for a total of $10,000. Funded by a gift, to you from your sweet Uncle Max. These donations would probably trigger a red flag with the IRS because:
- The $10,000 is high for a person making $30,000 per year.
- 33% of income going to charities is high at any income level.
- It is inconsistent with your activity in prior years.
But this is a legitimate deduction and you should take it. Now you could just list this as a lump sum on Schedule A and let the IRS red flag it. But what we would do is:
- List each charity by name and amount.
- Provide an explanation that the donations were funded by a familial gift.
The IRS only requires proof of cash donations to a charity when they’re over $250, so technically you wouldn’t have to keep records. But of course, prudence dictates keeping all the cancelled checks with a copy of your tax return for at least three years. If the above proactive measures didn’t head off a tax audit, you’d still be bulletproof.
If you’d like a free consult with a Wilmington NC CPA firm on IRS tax audit representation, please consider calling us at (910) 399-2705.
Include all Information on your Tax Return
We all get a plethora of tax forms by mail containing information that has to be included on this year’s tax return. From employers, banks, mortgage companies, student loan administrators, colleges, brokerage houses etc. What do they all have in common? The IRS also gets a copy. Leaving off the information from any of these tax forms usually triggers a tax audit. It may also open up other areas of your return to scrutiny.
We always compare last year’s return to this year’s return to look for errors of omission. Usually through our tax organizer which not only asks for information used in tax returns, but also inquires about new issues that may have arisen.
Don’t Make Math Errors – Make Entries Legible
If you opt for self tax preparation, use a tax program. Check your data entry twice. Tax software programs like Intuit TurboTax or H&R Block’s TaxCut will help keep math errors down and your entries readable.
If your confidence fades during self tax preparation, please consider calling us at (910) 399-2705 for a free initial consult. We’re a CPA firm here in Wilmington NC that believes tax audit avoidance starts with expert tax preparation.
Report all Income
The IRS believes over 200 Billion dollars of income goes unreported on tax returns. Mostly through cash transactions. While the IRS is under staffed and can’t audit all tax returns, they’re not stupid. They pull in all kinds of information from off shore banks, tax returns from people linked to you, casinos etc. Their infamous “lifestyle” tax audits impute your income from the way you live.
Use a Professional Preparer
We’re not talking Liberty Tax Service, Zip Zap, H&R Block or Jackson Hewitt where the preparers are not expert and have to rely on the software. We’re talking CPAs, Enrolled Agents and Tax Attorneys.
Be Honest
Having a CPA work all the legitimate tax angles is better than making up expenses or not reporting income. We see folks who just enjoy the thrill of sneaking one past the IRS and then worry every day when the mail arrives.
We’re a Wilmington NC CPA firm that provides expert tax preparation and world class customer service. Please consider calling us if you need a free initial consult on an IRS tax audit, or any other accounting / tax issue. (910) 399-2705.
