Tips to Avoid an Audit

What steps can I take to avoid being audited?

The thought of an audit summons fear in any taxpayer.  The reality is that your potential for being audited is slim. With a personnel and funding shortage, the IRS audited just .70% of all individual tax returns in 2016.  Nonetheless, there are certain red flags that will greatly increase your chance of being subjected to a dreaded audit.  Our San Diego tax audit attorneys offer some tips for avoiding an audit below.

  1. Report all taxable income:  The IRS will receive copies of all 1099s and W-2s that you receive.  Be sure to report all income on your tax return, as a mismatch between your reporting and the income shown on returns sent to the IRS could get you flagged for an audit.
  2. Be careful taking large deductions:  If the deductions on your return are significant when compared to your income, the IRS may subject your return to additional review.  However, taxpayers with the proper documentation to support the deduction have nothing to fear.
  3. Report your foreign bank account:  The IRS is showing a heightened interest in people with funds stashed outside of the U.S., especially in countries traditionally known to be tax havens.  Failing to report your foreign bank account could not only get you audited, it can also lead to severe penalties.
  4. Use caution claiming the home office deduction:  The home office deduction allows business owners to write off a portion of their rent, real estate taxes, utilities, and more. While the savings are great, the IRS is drawn to examination of this deduction because it is easy to defeat.  To take advantage of this deduction, the space claimed must be used exclusively and regularly as your place of business.
  5. Anticipate that with higher earnings, your risk of an audit increases:  People who make over $200,000 a year have far greater odds of being audited.  With a pay raise or increased profits of your business, be aware that your chance of an audit will be greater.

Audits are stressful and time consuming, but having an experienced attorney by your side will make the process far simpler.  Contact the California tax attorneys at Brunoro Law for assistance with all of your tax matters.

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