Are You Asking for an Audit?

An audit, which involves having your finances gone over with a fine-toothed comb, isn’t something that anyone wants. In fact, it’s something that a lot of people dread. If you’re like most people and want to avoid an audit, don’t ask for one! We know you wouldn’t actually ask, but certain things you do are practically a recipe for an audit, so, if you do these things, you might as well! By avoiding the audit “red flags,” you can greatly reduce your risk of being one of the unlucky taxpayers.

A Drastic Change in Your Income

If your income suddenly increases or decreases, this could spell trouble for you. The IRS typically takes notice of big changes in income, and if it has reason to believe you’re under-reporting income or that you have done so in the past, an audit is probably on the way.

There’s not much you can do about a major change in your income. If there has been a change, just do your reporting extra carefully in the coming tax year and make sure the change is easily explainable.

Lots of Business Expenses

Plenty of people have legitimate business expenses they can claim. However, some business expenses can look fishy to the IRS. This is especially true for those who work for themselves, particularly when they have lots of business-related deductions without bringing in a lot of bank.

Large changes in the amount of business expenses reported or business expenses that seem odd, like a trip to a popular vacation destination, also tend to raise red flags. The best you can do is to be as honest as possible, to never take deductions that aren’t 100% legitimate, and to file away all your receipts, just in case.

Greater-than-Usual Generosity

Giving to charity is a wonderful thing. Unfortunately, too much giving, especially if it’s not typical for you, can look bad. Each year, a great many people exaggerate their charitable donations in order to receive a nice tax write-off. Even if you wouldn’t do something like that, a large spike in your giving can raise suspicions.

The answer isn’t to stop giving or to stop claiming your donations. It’s to gradually increase the amount you give, since that will spike fewer suspicions than a sudden, drastic change. Also, keep all your receipts and records handy as proof.

In fact, careful record-keeping really is the smartest thing you can do in all aspects of your finances. That’s because, even if you follow all of these tips to a tee, audits still happen. They can happen to anyone at any time, so, even if you’re doing everything right, it’s always best to be prepared.

Friday, July 3, 2015