Getting audited is a major fear of many people. Thankfully, Alex Zorab explains that working with a certified public accountant can significantly ease those fears and ensure that the tax filing that is being submitted is as accurate and up-to-date as possible. Zorab is a CPA and partner at First American Tax Services in Chicago.
The first thing that I make sure that my clients do is to report all of their income. Not every bit of income that comes to people is listed on a W2 form, so it occasionally takes a bit more work to truly gather all the documentation listing how much income a person has brought in over the course of a year. But still, making sure that all of your income is reported down to the last cent is important, which is why that is my number one piece of advice to my new clients.
When it comes to under-reporting your income, you just can’t do it. If you have any income that is coming from a pension, in addition to your W2s of course, then that income is already being documented with the IRS. There is no need to try and be sneaky, because the IRS already knows that you got the money. So trying to hide that information or not report it won’t do you any good; it will just increase your chances for getting audited. People don’t realize this, but when someone sends you any tax form, they send a second copy to Uncle Sam at the same time. So you are going to want to make sure that any tax forms you receive are included in your tax return.
The second thing that any taxpayer should do is to make sure that he can prove any deduction that he is claiming. If you do end up getting audited, then it’s critical to have proper records and documentation for all the deductions that you claimed on your taxes. Some tax preparers who will mistakenly overstate or overestimate the donations, for example, on their clients’ filings. But as the client himself, it is your job to look closely at your tax return and make sure you have the records to back up any deductions or claims that are listed there.
One auditable point that the IRS looks at is people who appear to be overestimating or overstating their annual donations without proof or receipts for those amounts. For example, many people don’t bother keeping records for donations that are just over $250. But the truth is, any single donation made that is over $250 needs to have documentation behind it. So if you go to church and make a $20 donation each week, then you probably do not need to get a receipt for that. Nobody is going to care. But if you go to church and make a $250 donation in one shot, then you need to get a receipt for that if you want to deduct it on your taxes the next year. Having a number of large donations without documentation is definitely a red flag as far as the IRS is concerned, and it could definitely make you more susceptible to an audit.
The next thing that people need to do to lessen their chances of an audit is basic: They need to sign their returns. This seems simple, but a lot of people forget to sign their tax returns before they submit them each year. Unfortunately, the minute you don’t sign your tax return and you send it in, you are bringing more attention to your tax return than you probably want. This attention is just unneeded. It is simple—just sign your return and you’ll definitely cut down on your chances of being audited.
Finally, here at my office we advise people to not take any of the bad deductions that have the tendency to get people audited. Chief among these would be the home office deduction. The home office deduction is a very auditable point with the IRS right now, and it is the type of deduction that is going to really raise more than a few eyebrows at the agency. So I would say that in most situations, if you don’t need to take the home office deduction, then just don’t take it.
The IRS really pays too much attention to this point, in addition to donations, so it is probably not worth it to save $100 or $200 on your taxes, if it means raising red flags and increasing your chances of being audited at the same time.
