there are no guarantees that you won’t be randomly selected for an
audit, there are a few things you can do to avoid triggering one. Even
if you’re sure you can defend your tax positions, you don’t want to
waste the time, money, and energy that audits require.
Forbes.com recently published an article offering three rules to stay off the IRS radar. The rules are simple but significant:
Keep Good Records. Most
audits are conducted by correspondence, and you’ll need to be able to
provide records backing up each of your deductions. By keeping accurate
and thorough records, you’ll be able to respond quickly and easily.
Respect Those 1099s. To find potential problems and attempts to hide income, the IRS does return matching, correlating taxpayer identification numbers and payments. Even
small mismatches can trigger an audit. Develop a system to track 1099s
and be sure that each 1099 is correct.
Keep Business and Personal Separate. Although
you may consider the line between business expenses and personal
expenses to be blurry, the IRS usually doesn’t. Lunch with a friend
(even if you talk a little business), buying a vacation home as an
investment, or claiming your hobby was really for profit are gray areas
that the IRS may not see your way.
Spending a little extra now to follow these rules can save you significantly in the long run.