Ten Steps to Make It Less Likely That You'll Experience a Tax Audit
You can never completely avoid the possibility of being audited, but you can make it less likely
You've probably seen or heard ads guaranteeing that following certain tips will ensure that you won't get audited at tax time.
Want to know a secret? The reality is that you can never completely avoid the possibility of an audit. However, there are steps you can take to make it less likely.
The overall number of taxpayers chosen for an audit is usually less than one percent. In fact, in 2015 the IRS audited only 1,228,117 individual tax returns, or roughly 0.7 percent.
How did the agency choose those taxpayers? It considers a few different factors, including:
- Whether taxpayers' forms match their returns
- Whether tax ID numbers match those of any other taxpayers reporting information about you (such as dependents, babysitters, or employers)
- Whether your numbers match those of other taxpayers in your demographic
Even if all of your information is complete and without error, however, you could still be chosen randomly for an audit. Here are some steps you can take to make it as unlikely as possible that you will be among those selected:
- Check your math
- Blend in
- Double check Social Security numbers
- If you're a student, call your parents
- Get all your forms together
- Choose your deductions and credits wisely
- Make money
- Don't make too much money
- Don't guess
- Find a mistake? Fix it
It may be hard to believe, but math mistakes are one of the top errors reported by the IRS every year. These errors are also one of the easiest to catch, since math is one of the first things that the agency checks. The math on the first two pages of your return need to add up in particular.
The IRS looks for outliers when deciding which returns to audit, i.e. unusual data patterns. For instance, it's rare for someone to be able to claim that they donated more to charity than they reported in taxable income or that the size of their home office changes every year. As long as you have the records to prove such claims, it's okay to make them—just remember that they may put you at risk for an audit.
It's easy to hit the wrong key when you're typing a lot of numbers, and it's hard to remember Social Security numbers for other people (such as your children). When entering such numbers, make sure to double check that they're the correct ones, as the wrong numbers can raise an audit flag.
College students and their parents often run into tax issues when they both file claims. Students often file as independent, only to find out that their parents have filed and claimed them as dependents. The result is a duplicate claim, which can lead the IRS to pull both the students' and their parents' returns for an audit. To avoid this issue, call home before you file and find out what your parents are claiming.
Make sure that you've got all of your forms before your file, including any that you need to report income from a side job (1099-MISC), interest (1099-INT), or dividends (1099-INT). If the IRS can't match the information from your tax return to a form, it may result in an audit.
It's easy to get overwhelmed by the number of credits and deductions available. Sometimes it may seem like you're eligible for a certain credit or deduction when, in reality, your income or some other factor restricts you from making such a claim. And it's not a good idea to claim a credit solely to increase the size of your refund, either.
If your deductions are always more than your income, or if you report a loss in your business every year, it's a red flag to the IRS. If your tax returns indicate that you don't appear to be able to support yourself, you might be audited.
This may seem contradictory, but just as the IRS will pay you special attention for making too little money, it will do the same if you make too much. Households reporting higher incomes are usually more likely to be audited. You may rather have the extra money, but first think about whether or not it's worth an audit.
Yes, IRS employees are people too. They know that once in a while you might hit a perfect round number for an expense; however, they also know that doing so is relatively rare. You are allowed to round numbers on a tax return, but only to the nearest dollar—not to the nearest hundred or thousand. And if you claim an expense on a return, keep the receipt even if you think you don't need it.
Yes, filing an amended return is annoying. No one likes to admit they made a mistake. But it's much better to admit it and then fix it than to ignore it. Remember, the IRS pays attention to things that stand out on your return, especially when they stick out in comparison with your other returns. If the error is really out of place and can't be explained easily, the agency might pull your previous or subsequent year returns as well as the one with the error. Fixing it is by far the easiest thing to do.
Remember, there's no way to make absolutely sure you won't be audited. Following these steps, however, will make it less likely.