TAX TIP --IRS Audit Prevention

IRS Audit Prevention

The IRS uses patterns and statistics in deciding which taxpayers to audit. By decreasing the "red flags" on your tax return, your chances of being audited are significantly reduced. Here are some of the red flags that you can avoid.

1. Make sure there are no math errors on your return. The easiest way to do this is to have a tax preparer do your return or to use tax software.
   
   
2. If at all possible, don't put down whole numbers such as $10,000 or $4,000 on your tax return.
   
   
3. Consider forming a business entity to put your current Schedule C business into. Having a Schedule C on your tax return is one of the biggest red flags of all since business owners can hide income and try to treat personal expenses as business expenses. By having a corporation tax return instead of a Schedule C on your individual tax return, your chances of being audited decrease substantially. You should consult with your CPA and possibly your lawyer to see if a Corporation is right for you.
   
   
4. Home office deductions are another red flag that can be avoided by filing a partnership or corporate tax return instead of using Schedule C. Your home office expenses are a lot less noticeable on a partnership or corporate return than they are on Form 8829 of your 1040.
   
   
5. Make sure that your tax return numbers match the 1099s you receive from your broker, employer, or investment company. EXAMPLE: Your 1099 from your broker shows $55,342 in gross proceeds from stock sales. If the only stock you sold during the year was through your broker, the gross proceeds shown on Schedule D of your tax return should be $55,342.
   
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   If you want the best in tax advice please see my blog at
   
   LarryLaveTaxman@blogspot.com or email me
   
   LarryLaveTaxman@gmail.com