Few circumstances in life are dreaded as much as an IRS tax audit. Thankfully, these are far from common. In 2016, for example, the IRS audited just 0.6 percent of all tax returns. Still, the hassle and potentially harsh consequences make these preventative efforts worthwhile:
Check — And Double-Check — Your Math
The most common IRS errors are among the most obvious. Simple calculation issues can make a huge difference. A little extra time could save you a great deal of hassle, so don’t hesitate to thoroughly analyze your return for potential errors.
File Returns Electronically
E-filing is far more convenient than filing by paper, but its benefits certainly don’t end there. Turns out, this method is also less likely to lead to an audit.
Taxpayers who continue to use paper-based returns are far more prone to mistakes, as evidenced by an IRS report revealing error rates of 21 percent for traditional filing. Digital returns, however, possess a surprisingly low error rate of 0.5 percent.
Enter Realistic Deductions
Your desire to reduce your tax bill is only understandable, but huge deductions will likely raise alarm bells for the IRS. This is particularly true for sole proprietors. With profits and business expenses listed on Schedule C, multiple years of losses could cause the IRS to question whether the filer is in business in the first place.
Even ‘regular’ employees consistently make mistakes, however — often because they fail to understand what, exactly, constitutes a legitimate deduction. When in doubt, follow this helpful rule of thumb: If you absolutely need to spend money on something to make money, that expenditure might qualify as a deduction.
Take a proactive approach to taxation with help from the Highland Tax Group. We offer consulting and advisory services in hopes of minimizing the risk of audits. Call 720-398-6088 today or reach out online to learn more.