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.
