Mis­takes That Lead To Au­dits

Escalon Times - - PERSPECTIVE - Nathaniel Sillin di­rects Visa’s fi­nan­cial ed­u­ca­tion pro­grams. To fol­low Prac­ti­cal Money Skills on Twit­ter: www.twit­ter.com/Prac­ti­calMoney. NATHAN SILLIN

You’re not alone if your heart pounds when you see a let­ter from the In­ter­nal Rev­enue Ser­vice (IRS) in your mail­box. While some lucky fil­ers get sent a let­ter be­cause they’re due a larger re­fund, most of us fear the worst – an au­dit.

Those fears may be largely un­founded for the av­er­age house­hold. Only about one per­cent of taxpayers get au­dited, and high­in­come taxpayers are dis­pro­por­tion­ately tar­geted.

If you are au­dited, it might not be like you imag­ine. An au­dit could fo­cus on a par­tic­u­lar line en­try, credit or fig­ure, and you might only need to mail or fax a copy of the rel­e­vant pa­per­work, such as an in­sur­ance re­port or re­ceipt.

Even so, get­ting au­dited isn’t fun. In the best case, you have to take the time to dig through your records and re­spond. In the worst case, you have to do all that as well as pay penal­ties and in­ter­est.

What can you do to help re­duce your risk of au­dit? Au­dits, or ex­am­i­na­tions as they’re also re­ferred to, could be the re­sult of a ran­dom se­lec­tion, mis­matched documents, de­vi­a­tion from the ex­pected “norms” for sim­i­lar re­turns or con­nec­tion to some­one who’s be­ing au­dited. But there are a few things you can do to help min­i­mize your chances of be­ing au­dited.

En­ter all your in­for­ma­tion cor­rectly. Take an ex­tra few min­utes to dou­ble-check the in­for­ma­tion you en­tered when pre­par­ing your tax re­turn. A mis­spelled name or wrong num­ber could lead to an ex­am­i­na­tion. In­clude in­for­ma­tion from ev­ery form with your re­turn. When an or­ga­ni­za­tion sends you a tax form, it also sends a copy to the IRS. The IRS has an au­to­mated sys­tem that can flag a re­turn when you don’t in­clude in­for­ma­tion from one of the forms you re­ceived.

Know the home-of­fice rules. Many small business own­ers and contractors work from home, but that doesn’t au­to­mat­i­cally mean you can claim the home-of­fice de­duc­tion. You can’t claim a guest bed­room where you oc­ca­sion­ally work, the room (or part of a room) must be used ex­clu­sively and reg­u­larly for business.

Only claim the EIC if you have earned income. To qual­ify for the Earned Income Credit (EIC), you need to have earned income, such as wages or salary, for the year. Other types of income, in­clud­ing al­imony, child sup­port, un­em­ploy­ment ben­e­fits and So­cial Se­cu­rity won’t qual­ify you for the EIC.

Don’t let fear cost you. Some taxpayers shy away from claim­ing le­git­i­mate cred­its and de­duc­tions be­cause they fear an au­dit. That could be a costly choice. There’s only a small chance you’ll get au­dited, and it could be quick and rel­a­tively pain­less — es­pe­cially if you keep good records.

Fear also leads thou­sands of peo­ple to fall vic­tim to tax-re­lated scams. Thieves may im­per­son­ate an IRS agent, but the IRS will never call or email you re­quest­ing a spe­cific type of pay­ment. The IRS only ini­ti­ates con­tact with taxpayers by mail, and you can choose among sev­eral meth­ods of pay­ment when you owe money.

Bot­tom line: While there’s no way to guar­an­tee the IRS won’t ask ques­tions about your tax re­turn, don’t let fear of an au­dit keep you from us­ing the cred­its or de­duc­tions you can right­fully claim. Fil­ing a com­plete and ac­cu­rate re­turn could help min­i­mize your chances of an au­dit, and if you do re­ceive a no­tice, you may be able to quickly re­solve the is­sue by fol­low­ing the in­struc­tions.

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