The thought of being audited by the Internal Revenue Service (IRS) can be terrifying for some individuals. As a tax professional, I understand that the IRS has a reputation that can cause worry. Still, if individuals have all their documents in order and follow best practices, the audit can be a painless process. However, rather than adopting defensive measures, we can be proactive and prevent audits from the outset. In this paper, we discuss how we can prepare ourselves and avoid an audit, factors that set people up for audits, and how a tax professional can help individuals with audits.
To avoid an audit, one of the most critical requirements is preparation. Preparation means getting documents in order, accurately calculating tax returns, and being open and transparent with the IRS. When individuals do this, they will have nothing to worry about when it comes to an audit. Defensive postures only make individuals more anxious and will not help avoid an audit.
One thing that increases the likelihood of an audit is the Do-It-Yourself approach adopted by many people. They feel they can calculate tax returns themselves because, to them, it seems easy. However, they lack the fundamental knowledge of tax codes and laws. Without the know-how, they are more likely to make mistakes that will raise red flags with the IRS. As a tax professional with years of experience, I have encountered many challenging tax cases, and often, people who worked on their tax returns had inaccuracies, thus leading to an audit.
Another factor that sets people up for audits is the perception of what deductions can be taken and what cannot. Family and friends usually provide lousy advice that causes problems later. Common incorrect claims include the idea that opening a business automatically grants a refund on your taxes. Such advice is false and can cause severe tax complications. In such cases, individuals usually gain false confidence from dubious advice and act on it, leading to adverse consequences.
Lastly, another significant factor that sets people up for audits is not fully understanding the guidelines for business use deductions. Many people have erroneously claimed deductions for some expenses they incurred when using their homes, such as rent, electric bills, heating bills, and other such expenses. Instead of saving money, such individuals have exposed themselves to audits, costing them far more than if they went to a tax strategist from the start. It is essential to know that the IRS sets specific guidelines, and without fully comprehending them, individuals can be penalized.
The fact that the IRS is often regarded as a boogeyman adds to the confusion. This is where I step in and audit tax returns to protect individuals from the hassle of an audit. I help individuals prepare their tax returns appropriately and ensure compliance with tax laws and guidelines. By having an expert go over tax returns for compliance ensures that individuals are protected from the inconvenience of an audit.
Tax audits can be a hassle, but they can be prevented with proper preparation. Tips for avoiding audits include:
- Preparing all documents.
- Forbearing from Do-It-Yourself approaches.
- Listening less to friends, family, and unqualified tax experts.
- Understanding business use deduction guidelines.
- Maintaining transparency with the IRS.
At times, however, despite our best efforts, audits are still bound to happen. Therefore, to mitigate the inconvenience of an audit, it is best to use and avail of the services of an experienced tax professional.
JoAnna Laiscell, September 19, 2023
References:
- IRS. (2019). “Understanding Business Use of Your Home”. Internal Revenue Services. Retrieved from https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction
