Staying Under the Audit Radar

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Staying Under the Audit Radar

by ELIZABETH CHECKLEY

POPULARITYHigh AUDIT RISKLow DIFFICULTYLow TIME REQN/A

Last year, 1.4 million people were audited by the IRS. Think its going to get better? HAH! As Congress continues to allocate more resources to the IRS, more and more people will be audited on a yearly basis. In fact, the government will be spending $8.2 billion on tax enforcement by 2011...ouch! Luckily, you've got Teaspiller here to show you how to reduce your chances of being audited.

So What Do I Do?

Keep trading records. You need to know when you bought stock and for how much, along with the same data for when you sold it. Unrealistic cost basis info will get you flagged, and there's no contesting it.
Legal dependents.Only claim a dependent if the person is actually a legal dependent (check the legal definition!). Also, easy as it is, tons of people incorrectly enter their Social Security number...oops!
Foreign bank accounts. Forget what you heard about going off shore...you still have to report your accounts, and any interest gained from them.
Self employed. Just because you bought a Ferrari, it doesn't mean you can write it off for your Formula 1 Driving School (We believe you plan to open it, really). Be realistic about what you write off, as the IRS is closely monitoring this considering how many people are unemployed. Make sure you keep consistent records to show income and expenses. And no, you can't deduct that last trip to The Bahamas as research for the new beach club you're opening.
Marital status. Make sure you file correctly when it comes to marital status (which is determined by your status at the end of the calendar year that taxes are being paid for). You can't file as single if you've got a hubby (or wifey), and you can't file as married filing jointly without the consent of your spouse. Got it? I do...
Higher incomes. If you've got an income over $200,000, you're 50% more likely to be audited. Don't pinch pennies...bite the bullet and hire a pro! Teaspiller has many CPAs and IRS Enrolled Agents (kind of like tax ninjas certified by the IRS...the Special Forces of tax pros) here to help.
Schedule C Returns. People who file a Schedule C are much more likely to get audited, since the IRS says that 70% of Schedule C filers artificially inflate expenses to show a loss. Make sure you can put your money (or lack thereof) where your mouth is and prove that a loss exists if the IRS comes knockin'.
Mistakes and Typos. Errors on e-Filed returns are 1% compared to 20% for handwritten returns. What does this mean? If you're doing it yourself, type everything out!
Double Check. Sounds like a no-brainer, but make sure the numbers are all correct! Check your info, and all your math. If you make an error, the IRS may just correct it and send you a bill. Make multiple errors and you start to raise some red flags...

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