Most people know that once a year, they are required to submit documentation to the federal government as well as the state for their tax return. They also know that if they fail to report things properly, they could be audited by the IRS and suffer penalties as a result.
The reason why most people only have a general understanding of tax law is because it's incredibly complex and difficult to understand. Even business owners can struggle with the finer points of the tax code, which is why getting a lawyer after receiving an audit letter is such a good idea.
As we explained in a post last year, the chances of the average taxpayer facing an audit are relatively low -- only about a 1 percent chance. Despite this fact though, facing an audit can be a worrisome occurrence and one most people want to avoid.
That's why we'd like to illustrate some ways today's readers can increase their chances of avoiding an audit. They are:
- Reporting any and all income, including money received from side jobs, awards and prices, and gambling winnings;
- Make sure you are reporting deductions accurately and truthfully;
- If you own a small business, report losses and gains, remembering that too many consecutive years of loss may trigger an audit;
- Remember to report selling your home as well as any mortgage interest you paid while you owned it;
- If you have questions, talk to an experienced tax preparer or someone knowledgeable in tax law.
Even though your chances of getting audited might be low, facing an audit can be incredibly challenging and oftentimes leaves most people feeling overwhelmed. Do yourself a favor though, increase your chances of avoiding one by asking questions about the scope of the law. Also, know that if you do find yourself facing an audit, you do have the right to an attorney who can help you through the process.
Source: CNN Money, "8 tax audit red flags," Jeanne Sahadi, Feb. 25, 2015