Top 10 Strategies to Prevent IRS Audits

The top 10 items to Do, or Not Do, in order to prevent an IRS audit are listed below. An audit may be costly, time-consuming, and emotionally taxing, as many of you can probably imagine. Please remember these strategies.

File your Tax Return on Time (even if you can't pay)

Not filing your tax taxes is one of the easiest ways to be selected for an audit. Many people who don't think they have enough money or don't have enough money for taxes don't file. They stay out of the spotlight. This just leads to unimaginable levels of personal stress and future issues.

Even if you have no debts and no income, I strongly advise you to STILL file. If you don't, the penalties are more severe. It's always possible to start a payment plan OR to be put in a "uncollectible status."

Please remember that the IRS is similar to a boyfriend or girlfriend in that they will assume the worse if you don't communicate with them. They'll believe you're unfaithful to them.

Be Aware of your Industry Averages and Common Expenses

You also list your industry of employment on your tax return. This enables the IRS to classify your spending and search for unusually high spending relative to your income. It goes without saying that you should never raise expenses in the hopes that they go unnoticed—that would be tax fraud. On the other hand, if a cost is excessive and would be noticeable, you SHOULD think about cutting it.

That sounds insane, I know. I agree that I consider lowering it twice or three times if you are eligible to a tax return. The sensible course of action is to make sure you have all the necessary documentation, backing, and "your ducks in a row" before incurring a significant cost for something that is unusual for other companies in your industry.

File Payroll Reports and Remit your Payroll Withholding

There are several things you should be aware of in relation to withholdings if you have employees. The IRS views this money as holy, therefore you must never fall behind on filing these reports or sending in your withholdings. It's also equally important whether you own and run an S-Corporation.

It's erroneous to assume that, as an employee of your S-Corp, you can be more at ease with yourself because you don't have any other employees. Payroll is the game you need to play if you want to take advantage of an S-corp's tax benefits. If you are meant to be playing, but you are sitting on the sidelines, the IRS will find out immediately. Get payroll assistance—end of conversation.

Avoid Schedules C and E When Possible

Small businesses can save a lot of money on taxes, but filing them as sole proprietorships can significantly raise your chances of being audited. If filing as a corporation or partnership makes financial sense, do so. It worsens considerably more if you lose frequently. It would be easy for the IRS to claim that you are running a "hobby" rather than a business, which is bad.

However, if you are a high earner, an S-Corporation would save you a ton of money and, according to statistics, cut your odds of an audit by a factor of 15. You wouldn't want the spotlight, but this would enable you to be more aggressive with write-offs that are sincere deductions.

Issue your 1099s

If you want to stay out of an audit, this is a major worry for the IRS. You must follow the correct reporting processes and issue the appropriate 1099s in January in order to claim deductions for paying subcontractors. if the deadline for this year has already passed. Make sure that never occurs again. Before you pay any subs, ask for their W-9s.

Attach Additional Statements and Comments

When necessary, substantiate any expenses and peculiarities that may occur by including additional information with your return. A real person may decide not to audit your return if your file is sent to an agent for additional scrutiny since you have already given the Revenue Agent the help they need.

I understand that when using software to file your return using a DIY (do it yourself) method, it can be challenging to determine when this is the appropriate time to accomplish this. But if you're going to take that route, be careful to consult a few maps as you go.

Don't Inflate the Home Office Deduction

Accept the deduction for a home office and don't be scared of it, but also avoid becoming overly combative. You can deduct expenses for your home office even if your company is an S-Corporation. Simply follow the protocol and keep in mind that "hogs get killed and pigs get fat." Stay away from greed.

Avoid Taking Excessive Dining and Travel Expenses

I am the first to suggest deducting a reasonable amount for meals and travel. These costs, however, ought to appear reasonable, balanced, and appropriate for your industry and income level. For example, I doubt daily dining expenses will be covered if you operate an evening eBay business out of your basement. And yet those kinds of costs will seem less aggressive, more typical, if you are a traveling sales representative hawking products.

Avoid Round Numbers

Although it should go without saying, you would be surprised at how many tax returns at our firm we find that have previous write-offs with large round numbers in the line times.

For instance, $400 as opposed to $379.22. This is a serious warning sign. In a given year, how many people spend $400 on office supplies? Even if you tried, I doubt you could go through Staples and make 1 or 2 purchases that exactly add up to $400.

Effective bookkeeping is the true secret to avoid making any estimates in the first place. To avoid rounding off and speculating later, be precise and maintain accurate records.

Conclusion

If you maintained accurate records, don't be scared to claim an expense to which you are entitled. Additionally, ensure that your returns are timely filed and do not stand out. Preventing an audit is crucial.

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