How to Avoid an Audit

As tax time approaches, many people are wondering how to avoid an audit. This is understandable because facing an audit is one of the most nerve-wracking things that a person can go through.

Fortunately, there are a few steps that you can take to make sure that you are not audited.

The IRS uses a flagging system called the DIF (Discriminate Income Function) in order to find tax returns that may look suspicious. What this does is compares your tax return to others who earn similar incomes. If it catches something out of the ordinary, then a person will review it and decide whether it deserves to be audited.

Thus, the most effective way to avoid an audit is to not stand out. If you itemize your deductions in such a way that you are paying significantly less taxes than others with the same income, the IRS will notice this and flag you. Your goal is to be as close to everyone else as possible.

Sometimes, this simply isn't possible. Perhaps you had a lot of medical expenses this year that you would like to deduct. This is of course, perfectly legal, but it's likely to set off a flag in the automatic system. However, if you include copies of supporting documents, then the person who is reviewing the flag, will dismiss the audit.

Self-employed people are more likely to be audited, so if you are self-employed you would do well to form a corporation and file taxes that way. You will be less noticeable if you do this.

Additionally, make sure that all of your itemized expenses can be categorized. If you list too many expenses in the miscellaneous category, the IRS will think that you cannot substantiate those expenses and may be more likely to audit you. Itemized deductions that are frequently called into question are bad debt, casualty, medical, charity, and home office deductions.

The last important thing that you want to do is make sure that you check your math. Something as simple as an incorrect calculation could cause your return to be flagged for audit. This can happen frequently when you file your return by hand, so consider using tax filing software to help you out. They are less likely to make mistakes.

The TaxSoftwareSite has a great newsletter full of tax tips and additional ways to avoid a tax audit. If you want to avoid an audit this year, start out on the right foot by finding out which tax filing software is right for you.