Income Tax Planning: Tips To Avoid An Audit

When it is time to start filing your tax return, sound income tax planning can not only make the process much easier, but also help you avoid an IRS audit.

Nobody who files taxes wants to be under the gun of an IRS audit. When there are mistakes, or things do not look right, there are certain red flags attached to income tax returns. Individual IRS agents will then look it over and see if something is wrong, and can be fixed easily with a supplemental form that was not filed, or some other way. However, there are times when the IRS will elect to audit your records. Here are a few income tax planning tips to help you avoid an IRS audit.

Hire a CPA to Prepare Your Tax Return

Many people will try to file their own returns by themselves. Filing your own returns can be a good idea if you are simply filing a short form. The problems can come in, though, when you are making itemized deductions and are not aware any tax law changes. A CPA will be able to keep everything legal, while knowing what can be deducted and what can not. An added benefit of hiring a CPA is that most tax preparers will not accept any liability it an audit is declared.

Keep Meticulous Records

Ensuring a good, complete, and accurate tax return depends on the records that you keep. For regular individual taxes, this will be bank statements, mortgage records, and W2 forms. However, if you are a small business, then this will require keeping everything that comes in and goes out in the form of income. These records will save you in the event of an audit, and should be kept in a place where you can easily access them. Keep them clearly labeled and file everything as soon as you receive it.

Report All Income

Any money that comes in should be recorded on your income tax return. While some of it may not be taxable, you must still report it. Things like alimony payments and even lottery winnings are often neglected. The IRS will match records from others (especially in the form of alimony payments) and will cross check them. If you received any of these payments, and they are not recorded that could trigger an audit.

File Promptly

Many people will wait for the last minute to file their income tax for the previous year. Some may even to over the limit. Good sound income tax planning allows for the date that your taxes need to be in. Try to get some of the process started by hiring an accountant, and making sure your papers are organized. File as early as you can so if there are any mistakes, you can file the appropriate supplemental forms.

Attach Copies

If you are going to be using a large deduction on your audit, then attach a copy of the receipt or any other information you can. While the computer might still throw up a red flag, the person reviewing your return will be able to see that you are providing proof and drop the case right there.