If the prospect of an tax audit has you reaching for the panic button, you're not alone. Every year, the IRS selects a small percentage of Americans for an audit. A set number of returns are chosen at random, but the majority of audits are triggered by errors or inconsistencies. There's no way to know for sure whether you'll be audited, but you can take steps to minimize your odds of being targeted.
Document Your Deductions
A tax deduction reduces your taxable income, which can effectively drive down your tax rate. There are lots of tax deductions couples can claim, including deductions for work expenses, education expenses, charitable donations and exemptions for children if you have them. The number-one rule for couples who plan to claim these or other deductions is to keep accurate records. Don't assume the IRS is going to believe that the crystal vase you donated to your church's yard sale is worth the $50 you say it is. Don't claim a deduction if you don't have receipts, bank statements, mileage logs or other documentation to back it up.
Do the Math
Whether you're doing your taxes the old-fashioned way with pen and paper or using special tax software, checking over your figures is always a good idea. In fact, mathematical errors are the number-one reason many taxpayers end up getting targeted for an audit, according to SmartMoney. Before you file your return, take some time to go over it carefully to make sure all the decimals are in the right place. Have your spouse double-check the math if you need a fresh set of eyes.
Report Your Income
This may seem like a no-brainer but one of the easiest ways to raise a red flag with the IRS is forgetting to report all of your income. If you and your spouse receive W-2s, 1099s or any other income statements, the IRS gets a copy too. It may not seem like a big deal to leave off the $20 in interest you earned from an old bank account but the IRS will want to know why you didn't report it. If you're self-employed, you need to be especially careful to report all of your income. According to ABC News, self-employed taxpayers who file Schedule C are up to 10 times more likely to get audited.
Rounding your figures up or down may make it easier to total up your taxes, but it can also cause the IRS to raise an eyebrow. For example, don't report a charitable donation of $550 if you only donated $547. The IRS wants to know that you're reporting income and deductions down to the penny, and too many round numbers gives the impression that you're just estimating. Be as specific as possible when entering all of your information, and double-check to make sure what you're claiming matches your records.
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