Friday, February 11, 2011

See 6 ways to avoid an audit

There is no way to avoid a tax audit. Well, actually, there may be, but I do not recommend.

I know a coach who suggests avoiding an audit by underpaying income tax by $ 10. While the dollars are in circulation, the return goes to the collections, which minimizes, according to him, the opportunity for the audit division to focus on his return. He believes that the penalties and interest on the $ 10 due to insurance minimum to reduce your exposure.

Most tax returns audited are selected for review, either because the filer is part of a target group, or because a computer program selects the return. The computer system randomly selects many returns, but there are red flags that draw the attention of the Internal Revenue Service.

The key is to minimize your exposure. Here are some things you should avoid:

1. math errors
The biggest reason people receive letters from the IRS is addition or subtraction goofs. Fortunately, math errors rarely lead to a full audit. Still, check your math before sending your return.

And if you receive a letter from the IRS saying you owe money, check your first paragraph. Sometimes, an employee of the IRS misreads one of your numbers, or number is typed into the computer system the IRS incorrectly. If the agency is wrong, send a letter with a printout of your calculations.

2. Mismatched interest and dividend reports
If the values declared in the documents do not match the amounts on your return, you receive a letter.

There are many possible errors here. Sometimes, the IRS Form 1099 will enter the information (investment, interest and other non-wage income) on their computers and key in the wrong amount of income or Social Security number of the recipient. If your income is not, receive a letter from the bank or other payer and forward that letter to the IRS. If the value is incorrect, send a copy of Form 1099 sent to you by the author.

3. You're on the hit list IRS
Those who receive much of their cash income are traditionally on the radar screen of IRS agents looking for unreported income. Be prepared to defend the non-income deposits into their accounts. Recently, the agency also identified small business owners and independent workers. Too many "business" cars were going to campus every September. Be prepared to substantiate your deductions.

4. You have a big mouth
Never brag about how you put one over on the IRS, especially on Facebook. The IRS has been successful trolling these sites to find unreported income and tax fraud.

5. You're exceptional
A computer program compares the deductions from the IRS with others in your income bracket and weighs the differences. This secret IRS formula, called the index of DIF is used to select returns with the highest probability of generating additional revenue through audits.

6. You have the wrong coach
Let's face it: Some tax preparers are less than professional. Some, unfortunately, are criminals. If your preparer promises you a refund before checking all the paperwork, run as fast as possible. This coach who will take the illegal or inflated deductions, and when the IRS finds out, you'll be the one who pays the bill, plus interest and penalties.