How Can You Avoid a Tax Audit?

1. How Can You Avoid a Audit How Can You Avoid a Tax Audit? ? Tax Every year thousands of Americans get an audit notice from IRS. If you want to avoid IRS problems then the following tips may be helpful: A Peep into Selection Process IRS makes use of DIF (Discriminate Income Function), a program that compares your deductions with others in your income bracket to find potential targets for audits. But there is nothing to get scared about; all you have to be careful about is proper documentation to back with. But then some taxpayers are selected by luck-draw, so there is no fool-proof system to avoid an audit, but you may surely lower your chances of getting one. Are you a likely target? If you are in the business of cash (like a waiter, hairdresser, etc.) or you are a lawyer or doctor or an accountant who maintain their books, you are more likely to be audited. You have to be extra meticulous with deductions and document everything properly. Go for incorporation If you are self-employed then you should you may consider forming an LLC. From our experience, we know that corporations and LLCs are audited less frequently. By creating an LLC, you may also go for

2. more deductions. Small business owners are favorite targets of IRS, so you have to remain prepared by keeping excellent records. To this end, you may hire an external agency to prepare your returns. Use additional explanations If you think that you have a good chance of getting an audit, then you should be using extra forms, work-sheet, receipts, etc. Make sure that you are making the best use to explain the inconsistencies from previous years. For instance, if your donations are exceeding previous year numbers, then you may have to explain this increase. While a DIF system may flag you but if a human agent may look at all the supporting documents that are provided. Once he is satisfied, he may hopefully decide that the documents are not well documented and don’t deserve an audit at all. Avoid Filing Amended returns If you can get it right the first time, then it is better. As if you file an amended return, the original return may also come under scrutiny. In The End Well, you can use these tips to mitigate some of the IRS problems, but you can always take precautions that you don’t get one in the first place.