Even the Odds: Things to Remember to Avoid Audits

Audits are not random, as most people think. The Internal Revenue Service (IRS) uses a program to cross-reference taxpayers' reports with that of the prevailing average of that particular income bracket. Although completely out of left field tax audits do occur, they are far from common.

Random tax audits cannot completely be prevented, but their likelihood can be reduced with the proper understanding of how they are conducted. This is especially true with certain occupations that are paid in cash, which due to the frequency of misreported returns are more likely to attract audits than most other jobs.

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First things first, taxpayers must watch out for red flags in their tax returns. Errors are the most common causes of audits and are also the easiest to avoid. Double checking returns before filing and being aware of possible red flags and errors can significantly reduce the likelihood of an audit.

One of the things to remember is that caution to avoid audits should not deter taxpayers from seeking deductions they would otherwise be qualified for. An audit shouldn't be much of a concern, after all, if the deductions are properly documented.

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Finally, honesty is the best policy. Taxpayers should report all their taxable income, including capital gains while providing adequate and clearly stated reasons for any variances in their reports.

An accountant specializing in tax compliance, Anthony Laxen is a shareholder at full service accounting firm Weber & Deegan, Ltd., in Edina, Minnesota. Visit this website for more on his firm.