5 Ways to Avoid an IRS Audit

Lower the risk of your return triggering a closer look.

5 Ways to Avoid an IRS Audit

Lower the risk of your return triggering a closer look.

As if tax time were not stressful enough, as if your annual role of receipt gatherer were not sufficiently mind-numbing, as if the hours of paperwork were not adequate punishment for all of your sins, the Internal Revenue Service may randomly ask you to be their guinea pig. The agency regularly scrutinizes random returns, without reason to suspect wrongdoing. The IRS will use the information to recalibrate the top-secret formulas it uses to ferret out which returns need a closer look.

Blame it on your cheatin’ neighbor: Agents discovered through past audits that taxpayers were claiming unusual dependents — some with names like Fluffy. As a result, the agency required taxpayers to include the Social Security numbers of their children on returns. In the next year’s filing, the number of dependents dropped by 7 million. The IRS believes that if it can find a few more revealing trends like that, it can close the estimated $290 billion gap between taxes owed and taxes collected. While there’s nothing you can do to prevent a random audit, you can lower your risk of your return triggering a closer look by avoiding the following five red flags.

1
A big increase in deductions from last year to this year

Look out for this if you’ve just started a new business in your home or you’re taking a deduction for part of your mortgage.

2
The home-office deduction

A perennial red flag, because you can deduct a home office only if you use that space for nothing else. A TV room that doubles as a study doesn’t count.

3
An unlikely ratio between income and deductions

No one outside the IRS knows exactly what the ratio is, but if you earned $60,000 and donated $10,000, that’s going to raise eyebrows.

4
Discrepancy between reported income and third-party filings

For example, you can make a last-minute IRA deposit before April 15; just make sure the bank reports it as a 2007 contribution.

5
Deductions for using your personal car for business

Technology has made this much easier to prove. Global-positioning-device records can bolster your claims.