Worried about an audit? After all, for those with pure souls it’s easy to screw up on your taxes unintentionally due to an incredibly complex tax code. Of course, there are those who intentionally screw up as well. All ethical matters aside, nobody wants to get audited. Here are six time-tested practices to heed when filling out your tax return that will help prevent it from looking like a smoke signal in the eyes of the IRS.
1. Consistency in your Returns:
Make sure that the taxable income numbers in your federal return match up with those in your state and local returns. Additional attention to detail will be needed if you are filing multiple state returns. The right numbers must be carried over to different sections of your return, as failure to follow directions is often one of the simplest ways for people to unintentionally screw up their return and get flagged for review.
2. Don’t Get Lazy with Deductions:
When claiming deductions, don’t get lazy. Let’s say that you drop off two bags of clothing to Goodwill. What looks more suspicious – a $500 deduction because you were too lazy to take the time to add things up, or a $473 deduction based off of a supporting list of every article of clothing you gave away? Additionally, make sure to categorize everything that you can, because a deduction list that is loaded with vague ‘miscellaneous’ or ‘other’ deductions will be a red flag because it points to you not being able to back up your claims.
3. Dust Off your Calculator:
If you are doing your own paper return, make sure to triple-check your math. Mistakes in your math are sure to make the IRS wonder if something else is amiss and they are easily avoided. Most tax software programs do the math for you and mark anything that simply doesn’t add up.
4. Fill in Everything:
Certain lines in your return are not ‘optional’, so be careful not to leave any glaring holes in your return. A blank line here or there could get you automatically flagged, especially if it leads to things not adding up.
5. Look Professional:
You wouldn’t send in a hand-written resume when job searching, so why would you send in a hand-written tax return? Unlike with resumes, messy documentation will get you noticed when it comes to your tax return. If you do file a paper return, try to have it typed out or take careful care to make everything legible. If you have no objections to using software that prints out your return or allows you to e-file, it’s definitely the way to go.
6. Declare all Eligible Income:
If you make $600 in income from any source, you should be given a 1099 form by the income payer. All 1099 income needs to be claimed on your return via the appropriate form and income of less than $600 should be claimed as ‘other’ income. If you don’t claim income under $600 you could get caught if the organization that paid you gets audited.
Also, don’t forget dividends, interest, and capital gains from your various investments. Granted, not many of us will have to worry about capital gains appreciation in 2008.
Don’t Lose too much Sleep:
The reality is that nearly 1.4 million individual returns were audited in 2008. This represents just over 1 percent of all federal returns filed for the 2007 tax year. 78% of these audits were simply paper requests asking for more information. So don’t lose too much sleep. If you take your time, do the right thing, and prepare over the course of the entire tax year, then you should be able to avoid the dreaded tax audit.