4 Ways to Avoid A Tax Audit

4 ways To Avoid An IRS Audit

You just arrived home from a long day at the office, you pull up in your driveway and your kids greet you at the car. “There’s no place like home,” you think. But then you come in, sit down and you start going through the mail. Car bill, credit card offers, and then you see a letter from the Internal Revenue Service.

As you open the mail, your heart is beating. The IRS has selected your income tax return for audit. Instantly, coming home is not so joyful. Why me?

Actually the chance of you being randomly audited fell by 7 percent last year, according to IRS. Random audits are now around 1 percent, according to Forbes.com. A lot of audits are not random and are caused by mistakes on tax returns or tax returns.

Here’s how to make sure your return is buttoned-up tightly. While you cannot control the random audit, here are four things you can do to make sure Uncle Sam does not flag your tax return as suspicious:

First, this may sound like the silliest thing, make sure your social security number is correct. I have seen tax returns with transposed social security numbers or the numbers are mixed up between spouses. These things happen and you really don’t notice because the social security numbers are familiar to you.

Second, always want to verify that the preparer signing your tax return has a tax license. You may be thinking, “Of course my preparer has a tax license” In 2012, IRS launched a program cracking down on unlicensed tax preparers. Suddenly, several tax offices went out of business. In certain instances these unlicensed tax preparers sued IRS believing IRS should not regulate tax preparers. This famous case Loving vs. IRS just settled in February 2014. The courts told IRS they had no right to regulate tax preparers. The IRS did not take this lightly and are right back in the trenches launching a new program. Based on IRS’s initiative to have all tax preparers licensed, I have personally seen an influx of clients contact us for audit help only to discover their return was signed by an unlicensed preparer. You want to ask to see their tax license

Third, make sure you file your income tax return on time. You never want to file your tax return late. If you decide to file an extension, I want you to note that an extension is an extension of time to file not an extension of time to pay. If you owe IRS or your state Revenue Department, you may still be considered delinquent in your filing because your extension is not considered valid if all the income tax due on the return was not paid by April 15th.

Last, but certainly not the least, make sure you report all your income on your income tax return. When your taxes are being prepared in April, it has been over 12 months since you have conducted some of your personal transactions that may affect your taxes. For example, you may have sold stock earlier in the year or you may have worked for a company for a short while and forgotten all about the W2 form. Either way, if you do not report all your income, IRS will automatically audit your tax return. If you are not sure exactly how much income you made, you can request a transcript from IRS so you can see exactly what is being reported to IRS on your behalf.

Quite simply, audits are a pain. Even if you have all your documentation, an audit is time consuming and is very stressful. Following the four tips I’ve presented is a great start towards prevention.

Karla Dennis

As seen in Forbes Magazine, Karla Dennis is an expert tax and business strategist. As an enrolled agent, Karla is licensed to represent taxpayers in all 50 states. She holds a Masters in Taxation and Business Development and is the author of two books, Tax Storm and Against the Odds.

Karla, CEO of consultancy firm Karla Dennis And Associates, Inc.™, has saved her clients thousands of dollars and has been featured in various media outlets such as Forbes, MSNBC, KTLA, Yahoo! Finance, and SmartMoney, marking her as the ultimate tax expert.

As of 2014, Karla became the new host on the “Mind Your Business” radio show, KTLK AM 1150, sharing her financial and business knowledge with the greater Orange County and Los Angeles areas. As a supporter of women’s rights and issues, Karla is part of the Women Network, an organization built to educate and mentor women. In addition, Karla is the radio host for Women Network Radio, a show that aims to uplift and empower women of all walks of life.