Tax Day is Monday, April 15, which means many people are busy gathering their paperwork and preparing to file. While tax time can lead to certain financial benefits—like a refund that you can use to pay off debt or build an emergency fund—it can also lead to less pleasant things—like a potentially time-consuming audit by the IRS.
Only about 1 percent of those who file taxes get audited—and MSN Money notes that 70 percent of audits simply require submitting more information to the IRS. But it’s still important to know what can trigger an audit and what steps you can take to make one less likely.
Double-Check Your Math
Faulty math is the biggest reason for getting noticed by the IRS, according SmartMoney. So it may be a good idea to take an additional look—or two—at your forms before you file them. Yahoo! Finance points out that if you find a mistake in your taxes after the IRS processes them, you can amend them by filing a 1040X form within 3 years. Karen Reed of TaxResources Incorporated notes that the IRS can be more lenient with penalties if they feel the person filing made an innocent mistake.
Be Mindful About How You Claim a Vehicle
Kiplinger notes that when you claim a depreciation deduction for a car, you’re required to note on your tax form how often the car was used for business purposes. Saying a car was used 100 percent for business can lead to an audit, mainly because it’s rare that a vehicle is ever used only for this purpose. If the car was indeed used solely for business purposes, you should definitely say so—but be sure to have mileage logs and other documentation ready to prove your case.
Explain Your Deductions
Donating items you no longer use or deducting the cost of home office supplies can be a great way to reduce your tax liability. If you do, though, SmartMoney suggests including a note of explanation if either of these deductions are particularly high. Did you donate almost all of your furniture while moving? Let the IRS know. And as usual, make sure you have the necessary paperwork on hand in case they ask any questions.
Report All Sources of Income
If you have multiple sources of income, be sure to report them all to the IRS. Kiplinger notes that the IRS receives copies of all of your 1099s and W-2s, so forgetting to report any of them—even that short-term job you had at the beginning of the year—could lead to an audit. You should also make sure the numbers on your 1099 accurately reflect your income—if they don’t match up, ask for a new one.
Have you ever been audited? What steps do you take to make sure all of your tax information is accurate?