Tips to Avoid an Audit

The tax audit, a thorough investigation of one’s finances, is every taxpayer’s worst nightmare. While, sometimes, an audit “victim” is just chosen at random, more often than not, people who are audited go through the process because they raised some kind of “red flag” with the IRS. Therefore, you can greatly reduce your chances of going through an audit by avoiding any actions or behaviors that could be construed as suspicious. To help you out, here are a few things to avoid if you don’t want to be audited.

Exaggerating Charitable Contributions                                          

It’s great to be a do-gooder, especially because your contributions can pay off big time in terms of tax write-offs. However, when reporting charitable contributions, you always want to be completely honest and transparent about what and how much you gave.

The IRS has a formula it uses to determine the average charitable donation amount for people of a certain income. When you report going above and beyond that amount, the IRS is more wont to check you out and make sure you’re being honest.

If you are legitimately someone who gives beyond your means, just make sure you keep receipts, donation slips, or other proof of your contributions.

Random Deductions

Deductions are completely legal and allowed under tax law. Some deductions, such as home office deductions, are extremely common. However, there are also those random deductions like botox injections so you could stop your profuse sweating, that make the IRS (and everybody else) go “huh?”

Don’t try to get cheeky with your deductions by using euphemisms or just flat out being dishonest. Only claim legitimate deductions and be transparent about why you’re claiming them. Otherwise, you could find yourself not only getting audited but also facing potential fines, fees, and even jail time for fraud.

Overseas Accounts

You’ve probably heard about how people avoid paying taxes by having “Swiss bank accounts” or other overseas funds. And, if you have a legitimate, provable reason to have funds overseas, that’s fine. If you don’t however, know that hoarding money in another country gives the IRS a lot of pause....and plenty of reason to audit you. That’s not to say you can’t keep money overseas, for whatever reason, but just make sure you disclose it.

As you can see, it’s all too easy to alert the IRS to something potentially risky going on. And, even if you’re an honest person, this could mean a pesky audit for you. To avoid auditing, follow these tips and consider the possibility of getting an accountant to help you eliminate “warning signs” from your financial life.