This is the time of year when the issue of a tax audit is most on the minds of the average California residents, because many are in the process of preparing their yearly income tax return. Tax audits are a generally intimidating proposition and most people do everything they can to avoid an audit. However, without insight into how the IRS works and what types of things can trigger an audit, this can be hard to do.
There are various types of omissions that are more likely to trigger an audit than others, such as failing to report income from a 1099 independent contractor income form or income from investment accounts that were reported to the IRS by the bank.
Attention to detail is an important aspect of avoiding an audit, particularly for those who are self-employed and may be seeking large amounts of deductions. In those cases, it helps to be specific about each deduction and resist the urge to add everything up or estimate an amount to deduct as a miscellaneous or office expense.
In the end, audits happen to about one percent of tax payers, which comes out to more than one million Americans each year. If an audit does occur, it is important to be prepared with documentation to support income and deductions that were claimed. In addition, it is important to consider carefully who you look to for help in the case of an audit. Many people are not aware that tax preparers who make mistakes or misrepresentations on a tax return are held liable by the IRS, so it may be in their best interest to demonstrate that the taxpayer was responsible and not them. In these situations taxpayers must defend themselves against the allegations.
Source: ABC Local, “Tips to avoid getting audited by IRS this tax season,” Jeff Ehling, March 6, 2014.