While audits are a necessary part of the tax process, they can be a real headache to deal with. Even people who don't intentionally defraud the IRS often live in fear of the dreaded audit.
There are plenty of ways that an honest person can accidentally file their taxes incorrectly or even try to get the highest possible return by stretching the truth a bit. Here are some of the most common mistakes to avoid if you don't want to be audited.
Poor Choice Of Tax Expert
This is a big one! Tax returns are complex and most people don't have the knowledge necessary to properly file their taxes by themselves. That is, after all, the reason these experts exist. It's important to make sure you hire a real professional who knows what they're doing and won't try to game the system on your behalf.
Stretching Your Deductions
When filing your taxes it's only natural that you'd want to include all possible deductions so you don't overpay. However, it can be easy to get carried away and cross the line between getting what you're owed and claiming things you aren't entitled to. Some of these exaggerations include:
- Inflating Charitable Donations
- Claiming A Home Office That Doesn't Qualify
- Extra Business Deductions
- Listing A Hobby Or Side Hustle As A Business
- Claiming Personal Expenses Are For Business
The bottom line, you absolutely should claim everything you're entitled to. Just make sure you have the proper documentation to back up the amounts.
Many people try to keep some of their income from the IRS, especially when it comes from non-traditional sources like freelance work, alimony payments, investments, or under the table jobs. The problem is that the IRS sees everything!
Even if you don't report it, the source of that income almost always does. Don't risk getting caught committing fraud. You may think you can't afford to pay taxes on that money, but when you add in fines, penalties, and interest, you can't afford not to.
Rounding Off Numbers
Filing your tax return is a long and detailed process. It may feel like no big deal to round up or down rather than finding the exact number in your records every time, but it is. The IRS knows how rare it is for money to be nice round amounts. If they see too many of them, they'll know something is up.
This one may sound unfair but it does happen. If you're filing your own taxes, using a tax program, or supplying your tax accountant with figures rather than documentation, there's a chance you'll make a few calculation mistakes. The problem is, they can't tell if you forgot to carry the one or lied about the amount, and they have to check into errors like that, especially if they pile up.
Play It Safe
It's always best to be as honest and exact as possible every step of the way. Keep all of your records, receipts, and pay stubs for at least 7 years so if you're ever audited, you can back up every number. Most importantly, don't do it alone. Hire a qualified tax professional to help you ensure that you do everything the right way.