Avoiding the audit should be goal No. 1 when it comes to your taxes this year. And, here's where an ounce of prevention can prevent a pound of cure. Here's what to be on the lookout for:
- If you are a high earner, you are more at risk for an audit.
Taxpayers earning $200,000 or more have an audit rate three times more than the general population. And if you're earning a million dollars, you're chances jump to one in nine. The lesson of the story: The more you make, the more careful you need to be with your filings.
- The home office deduction.
It's everyone's favorite, unfortunately not everyone should take it, and this year the rules have changed. You can opt to use a simplified formula that maximizes the write-off at $1,500. Whether you use the new calculation formula or not, make sure the space you say you're using as a home office is used exclusively for that purpose.
- Non-cash charitable contributions are a favorite area of scrutiny for the IRS.
Many families like to give the old family clunker as an in-kind gift to their favorite non profit. If you choose to do so, be sure the car is properly valued.
- You claim deductions that are disproportionate to your income, such as large charitable contributions, substantial mortgage interest or real estate taxes.
The IRS knows average deductions for filers of varying incomes. If your deductions are out of line, you may get a second look. Having said that, don't back away from deductions you are due.
- You forget to claim income.
If you get incomes from various sources, you'll need to report it, even if the 1099 form doesn't reach your mailbox. That's because the employer will no doubt report your pay to the IRS on their income tax form. It's easy to lose track of these payments over the course of the year. Keep good records.
Finally, if the worst happens and you do get contacted by the IRS, don't panic. Chances are what you're experiencing is a "correspondence audit," meaning it is a request for more detailed information conducted by letter. You may be well able to handle this yourself by supplying the missing information.
The Willis Report with Gerri Willis investigates the top business stories, outs corporate scams and polices D.C. policy.