For some people, the words "tax audit" can instill fear, if not downright panic.
It's understandable. After all, we have all seen headlines where people's bank accounts, personal possessions, and even homes have been seized by the IRS to satisfy tax debts after an audit.
One of the most famous seizures happened in 1990. The headlines featured Willie Nelson handing over many of his properties and possessions in order to satisfy back taxes. Of course, there is more to the story. But the important point is that there are things you can do to prevent a tax audit from happening to you in the first place.
Double-check Your Figures
One of the most obvious ways to prevent being audited on your taxes is to simply double check all of your figures before you file and pay your taxes for the year. Use a calculator to make sure your figures are correct when adding multiple figures or making complicated calculations. In addition, look back at your source documents to ensure those figures are accurate as well. You'd be surprised how many times I found mistakes where numbers were different on schedules than on the front page during my time as a financial analyst.
Understand Your Deductions
Many people make inaccurate deductions or even miss deductions simply because they do not understand them. If you aren't sure what you can and can't claim in deductions,
that can help you through the process to make sure what you are claiming is correct.
Stay in the Middle Income Bracket
It doesn't always pay to be wealthy when it comes to being audited. Those with incomes over a million are more likely to be chosen for a tax audit. One of the reasons is that the wealthy usually claim more deductions and contribute a larger amount of money to charity per year than the rest of the population. This places them at a higher risk of being audited.
Keep Good Records
Good record keeping is of vital importance when it comes to filing your taxes accurately and preventing a tax audit. If asked during an audit, you should be able to pull out invoices, receipts, and any other supporting documentation to back up the figures you reported.
For instance, you should keep records of what and how much you donate to charities, receipts for supplies, and more.
Be Honest
Honesty in reporting is essential on your tax return. Hiding money or not reporting all of your income will probably get you audited by the IRS. It could even land you in in jail.
File Electronically
According to the IRS, the error rate for electronic returns is drastically lower than that of paper returns. To keep the odds in your favor, file electronically.
In truth, the IRS only audits around 1% of the population. So, the likelihood of you being audited in your lifetimes is actually fairly low. If you take the above advice about things you can do to prevent a tax audit, you reduce the odds even more.
Support HuffPost
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
At HuffPost, we believe that everyone needs high-quality journalism, but we understand that not everyone can afford to pay for expensive news subscriptions. That is why we are committed to providing deeply reported, carefully fact-checked news that is freely accessible to everyone.
Whether you come to HuffPost for updates on the 2024 presidential race, hard-hitting investigations into critical issues facing our country today, or trending stories that make you laugh, we appreciate you. The truth is, news costs money to produce, and we are proud that we have never put our stories behind an expensive paywall.
Would you join us to help keep our stories free for all? Your contribution of as little as $2 will go a long way.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you’ll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.