No one wants to get into trouble with the IRS or any other tax authorities as resolving it often means a lot of work. A tax audit, in particular, would be the last thing that you may want to encounter. Still, these are more common than you think because taxpayers make intentional and unintentional mistakes while filing returns and paying taxes. Is there anything that you can do to avoid a tax audit? What are the strategies that you can embrace to minimize your risk in 2020? Things can probably get tougher this year because the authorities are likely to be more aggressive with their practices. Still, here are some strategies that you can follow to be on the right side of these tax laws.
Double-check your returns
Something as harmless a typo in your returns can land you in big trouble. Mathematical errors can be equally problematic. While some taxpayers may misquote the figures intentionally to evade taxes, there are others who could just make an innocent blunder. Both ways, the authorities may send you an audit notice. This is the reason why you should double-check your returns before filing. Using tax software is a good idea and so is getting your returns checked and filed by an experienced tax professional.
Honesty keeps you on the safe side
Being absolutely truthful on your tax return is essential if you want to eliminate the chances of an audit. You need to be realistic while quoting your income, tax credits, deductions and every other figure. If you think that you can get away with false figures, you are in for a surprise because the authorities will surely detect the discrepancies. Not reporting income or hiding large amounts of cash is a surefire way to invite trouble. Make sure that you don’t do anything wrong in this context and have solid proof to validate every figure on your return.
Be careful while claiming deductions
One of the most common red flags for the IRS is unusual or unrealistic itemized deductions on a taxpayer’s returns. There are several assumptions about legitimate deductions for individuals as well as small business owners. Consulting an expert is the best approach to understand the ones that are valid in your case. It is advisable to seek advice from an attorney who specializes in representing individuals facing a tax audit because they know the red flags exactly. They can guide you about the deductions you should claim and the ones you should skip to avoid an audit.
Have proper documents in place
Just filing your returns on time and having genuine information on it does not guarantee safety from a tax audit. You need to have a documentary record for everything that you list on the returns. Your bank statements may not be adequate for validating the figures on the return. Rather, you should have physical and digital receipts at hand. Keeping them organized in a file is a smart idea so that you have them handy when the IRS wants to see them. You should keep the records a few years at least because a majority of audits happen within a period of three years of the filing date.
Fix your mistakes as soon as you can
Another thing that you should be careful about for avoiding a tax audit in 2020 is correcting the mistakes on your returns as early as you can. Filing amended returns should be your top priority because the IRS is likely to consider a delay as a red flag. Remember that the tax authorities prefer consistent patterns in your returns. Therefore, anything that appears unusual as compared to your previous returns is likely to attract attention for all the wrong reasons. If you get a notice from them, be quick with the amendment and ready to explain anything unusual on the returns with valid proof.
A tax audit can cause you major stress, whether it is due to a mistake or intentional attempt to cheating the IRS. You should be careful about not getting one in the first place because tax evasion can spell major trouble. Avoiding errors is equally important because this approach can save you from a lot of hassle. At the same time, you should have a well-planned strategy to deal with one if it does come. The best advice is not to panic but rather deal with the situation coolly. Collaborating with a seasoned tax law makes it easier to address the concern and resolve the problem with negotiation rather than facing something more critical.