It's tax time again. The last thing you want to worry about is an audit. If you earn less than $200,000 a year, your likelihood of being audited is about one in 100.
Those odds go up significantly for certain types of taxpayers. Consumer Reports has important advice on how to stay under the IRS radar.
Accountant Alan Rosen says his clients tell him getting notification of a Federal income tax audit can be a scary moment.
Rosen says, "The first thing that goes through their mind is absolute panic that they're being audited. What did they do wrong? They can't believe it. There goes everything they've worked for, saved for all these years."
Consumer Reports Money Adviser's Tobie Stanger says some taxpayers are more likely to be audited than others.
Stanger says, "Taxpayers who have their own business and itemize deductions for home office, telephone, business meals, they need to be extra careful."
Business expenses that could be personal, like meals or travel, are one of the first things the IRS goes after. Keep a careful calendar of your business meetings and hold on to the actual receipts and not just your credit-card bills.
And if you claim a deduction for a home office, be sure it looks like an office. Also, it's best if it does not double as a laundry or playroom.
Stanger says, "Another red flag that can attract attention of the IRS is excessive charitable donations. If you're donating 50% of your income that can seems out of place."
Again, make sure to get dated receipts. They are required for cash contributions over $250 and for gifts of goods like clothes or furniture.
Stanger says, "You should keep your tax records for as long as the IRS can audit you, which is three years. But just to play it safe, we recommend holding them for seven."
And last but not least, check the math! Believe it or not, simple mathematical errors trigger the most notices from the IRS.
If you prepare your own taxes, two of the leading programs-H & R Block At Home and Turbo Tax-offer some level of additional help in the event of an audit.
But you may need the audit protection in advance.
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