BiggerPockets - Tips on How to Avoid an IRS Audit

[Julio Gonzalez]

When most of us think of having the IRS audit us, we get anxious. Audits can be very expensive, invasive and ultimately time consuming. Some audits are inevitable. However, there are multiple preventative measures that can be implemented to reduce the risk of being selected for an audit.

Here are my top 6 tips!

1. Report all income
   1. Failing to report all of your income to the IRS can trigger an audit and is a common mistake. The IRS will compare what you put on your tax return to the income they have on file for you. This makes it very easy to detect a difference. Be sure to include all the forms you receive including 1099s, W-2s, K-1s, and any income from work such as investments, side hustles or freelance work.
2. Keep accurate records
   1. Keeping up-to-date and organized tax records is a huge benefit to you as well as essential to avoid getting audited. And also essential in the event that you do get audited! If your records show transparency in your financial transactions and are comprehensive, the IRS is unlikely to select you for audit.
3. Avoid abnormalities
   1. Abnormalities can be a red flag for the IRS. Your year over year changes should be explained and reasonable so that your tax returns are fairly consistent each year. Avoid high deductions for incomes that are not typical for your profession - rapidly increasing income or unusually low or high income.
4. Don’t claim unsubstantiated deductions
   1. This can be another red flag for the IRS. Don’t try to claim deductions to reduce your tax liability that you aren’t actually eligible to claim. All deductions must be accurate and you must have the supporting evidence such as invoices, receipts or other documentation that supports the deduction.
5. E-file rather than mailing
   1. This can help you reduce calculation errors, processing time and is proof that you filed your return on time. Additionally, when e-filing, you are typically provided with status tracking to know if your return has been accepted, when to expect refunds or if anything was wrong with your tax return.
6. Accept help from professionals
   1. If you are unsure of any tax regulations and issues, don’t be afraid to ask a professional. You want to ensure your tax return is as accurate as possible and tax professionals will have a very in-depth understanding of the different compliance rules with the tax code and can help you with compliance, tax planning and advisory services. Some professionals can even help you increase your knowledge and understanding of taxes by giving training on policies and procedures or other tax matters.

Like I said before, it’s impossible to completely avoid audits, however your focus should be to provide accuracy, honesty and transparency in your tax return. Utilizing the tips above should go a long way in helping you reduce your risk of audit. The best way to avoid an IRS audit is to be transparent and stay compliant!