Avoid A Tax Audit

Written by Lori Covington
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Want to avoid a tax audit? Of course you do, and there are simple strategies you can use to prevent the IRS from auditing you, or to make an audit as simple as possible. First, it helps to know that the IRS no longer does line-by-line auditing as a general rule: around 2,000 returns will be completely audited per year, and taxpayers are no longer required to be able to substantiate every line.

Most audits focus on parts of returns, and many are conducted by mail, with the IRS asking for documentation and the taxpayer mailing it in. And with the IRS focusing more time and energy on putting an end to abusive tax shelters, one of the smartest ways to avoid a tax audit is to not participate in any investment schemes that promise your tax savings will exceed your investment costs. That claim is a surefire way to tell a fraudulent tax shelter from a legitimate one.

Use of offshore credit card offers are another tax-avoidance scheme that the IRS is targeting in an effort to get people to pay taxes on their earnings. An estimated 1 million Americans use offshore and unreported bank accounts, paying their bills with credit cards from overseas. Not signing up for these illegal schemes is another way to avoid a tax audit because no matter where your money is held, you still have to pay taxes on it.

Avoid a Tax Audit by Being Honest

Report all your income! The IRS has a new computer program that selects returns for audit is the reported income seems out of alignment with what they know about the taxpayer. Thousands of people who currently underreport their income are slated to be hit by audits designed to bring them back into the taxpayers' fold. Also, people who claim wildly excessive deductions have always been audited, and always will be. Don't cheat yourself out of legitimate tax deductions, but keep it real.

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