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MAIN Arrow to HomeYour Money Arrow to Tax Links Taxes Arrow to How to Avoid an Audit How to Avoid an Audit

- Tax Audits & How to Avoid Them -
Raising the Red Flag at the IRS

Tax auditSure, the IRS is happy when you can take a deduction for which you're really eligible. However, taxpayers who stretch the truth in order to qualify for a questionable tax credit may want to avoid setting off a process in which their entire tax return comes into question.

This may result in paying extra tax, penalties or interest — or a complete audit of your present or prior years' returns if the IRS suspects a full blown case of tax evasion.

Take a tip from professional accountants and IRS tax examiners who offer valuable advice on tax deductions that usually set the red flags flying ...

red flagCharitable donations




Your Money: Avoiding Tax Audits

 

This is the most common deduction and, since so many tax filers tend to misuse it, it's also a major reason for "bells going off" at the IRS.

When giving used cars or clothes to a charitable organization, just remember that the value of your donation is what it's worth when you donate it. A used designer dress or suit given to the Salvation Army, for example, is no longer worth the $800 you paid for it, nor is an old jalopy worth the same as when you bought it at the car dealership - 10 years ago.

In short, say IRS auditors, be clear and reasonable when claiming charitable deductions by costing and itemizing each deduction.

In case you are audited, always keep receipts for charitable cash contributions. Also, ensure that your contributions really count by donating to U.S. recognized non-profit or charitable organizations.

red flagHome office deductions

As a growing number of Americans opt for business startups from their home, many of the newly self-employed find the home office deduction very enticing. However, it also presents one of the IRS' favorite targets of questioning. So, if you're absolutely sure that the spare room you've scoped-out has been used solely and "exclusively" for business, and can meet the various (and some say confusing) criteria for claiming the home office deduction, by all means go for it. Otherwise, say the experts, avoid the headache.

red flagEarned income credit

Another frequently taken deduction, the EIC was designed to provide tax breaks for low-income families.

Most people who file the earned income credit apply as guardians of children who live with them. However, most who read the fine print soon discover that they must prove they are related to the child, (normally, with a birth certificate) and that they have lived with them under the same roof for more than six months a year.

Unmarried tax filers, in particular, often mistakenly file for the children of a boyfriend or girlfriend that they have supported financially during the year. However, this scenario will also be disallowed unless the children have been first legally adopted.

red flagAvoid simple mistakes

Finally, be sure to report all your income, attach all related W-2 forms, re-check your figures to make sure there are no mathematical errors, and submit a "neat" return so your form can be easily read. If not you may - at the very least - receive a phone call or letter from a tax examiner asking you to further explain your return.

Seems obvious, but filing a correct tax return goes a long way toward avoiding special attention from the IRS.


also see in Taxes -> Tax Forms & Instructions by U.S. State

1040, 1040 EZ & Other IRS Tax Forms | Tax Tips & Tricks

also see in Home Legal Guide -> Tax Evasion

 

More about avoiding a tax audit around the Web:

Top 5 Ways To Avoid an IRS Audit

16 IRS Audit Red Flags

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