- Step 1: Don't exaggerate your generosity When it comes to your charitable deductions, don't wildly exaggerate your generosity. Anything above $1,600 per year, per family is eyed skeptically by Uncle Sam. If you're audited, you'll have to document any deduction over $250.
- Step 2: Use precise figures Use precise figures. The IRS is immediately suspicious of any deductions rounded to the nearest hundred or thousand. It indicates you're guesstimating a figure that you probably can't prove.
- Step 3: Don't insult their intelligence Don't insult their intelligence: If you simultaneously claim a tiny self-employment income and a large number of dependents, the IRS is going to wonder how you're supporting so many on so little.
- Step 4: Don't add the numbers up too neatly You'll also arouse suspicion if you're running a side business whose losses conveniently wipe out your salaried income taxes, or your business reported a large income but supposedly netted very little profit.
- TIP: If your small business is a substantial money loser two years in a row, expect IRS scrutiny.
- Step 5: Be careful if you're in a red flag job File cautiously if you're in a cash business that makes it easy to hide income, or if you are a professional who owns their own business and does your own bookkeeping. These tax returns are more likely to be audited because the potential for cheating is greater.
- Step 6: Be wary of the earned income tax credit If you're self-employed and manage to earn the exact amount of money that entitles you to the maximum earned income tax credit, the IRS may want to verify your good fortune.
- Step 7: Tread carefully if you're wealthy The more money you make, the more care you should take, because your chance of being audited rises with your income. It's not just the little people who pay taxes!
- FACT: People who make between $25,000 and $100,000 have a seven in 1,000 chance of being audited.
You Will Need
- Reasonable claims
- Proof of deductions and losses