Tax Law Professor Steven Melnik Offers
Top 9 Ways to Decrease the Chance
of Getting Audited by the IRS
NEW YORK, NY-March 16, 2015 -Tax season is upon us and the thought of getting audited can be a frightening and stressful event. Steven V. Melnik, Associate Professor of Tax Law with the Department of Accountancy in the Zicklin School of Business at Baruch College, is also the Academic Director of Graduate and Undergraduate Tax Areas and Chairman of Continuing Education Seminars for CPAs and Attorneys. Melnik says there are nine critical steps that you can take in order to decrease the risk of being audited by the IRS.
“It is important to understand that the proposed steps do not guarantee that you will never be audited, but will reduce the odds of you being audited,” he said.
Top 9 Ways to
Decrease the Chances of Getting Audited by the IRS:
1. Report all of your income and complete your return accurately.
It is important that the income you report on your income tax return matches the income reported to the IRS by your employer, business associate, etc. When the information you report does not match the information received by the IRS, this triggers a “red flag” and you are likely to be audited.
2. Maintain adequate records and documentation.
You should keep your tax records and supporting documents. Sometimes the IRS will ask for a support of just one item from your tax return. If you do not have these documents readily available, this may trigger a full audit of your entire tax return.
3. Double check your return for errors.
Errors of any kind reported on your tax return may trigger an audit. The most common errors are mathematical in nature. Be sure to calculate all items accurately. Also ensure that your personal information is entered correctly such as the spelling of your name, social security number, and address is correct. Don’t ever sign a return that you did not review.
4. Keep track of and limit transactions involving large sums of money.
Transactions involving large sums of money often require a reporting by financial institutions of the transaction. It is important that you keep detailed records of such transactions when they occur. In most cases, an individual may switch from an employer-held retirement account to an IRA which may appear to be double income when reported by both institutions. Keeping adequate records of your transactions will ensure that you are able to explain any discrepancies presented by the IRS agent before a full audit starts.
5. Choose your deductions wisely and responsibly.
If you choose to itemize your deductions, be sure that your deductions are not too high when compared to your income. The IRS has guidelines set in place in order to determine the reasonableness of your deductions claimed in relation to your income. Exceeding the average for your income level is likely to trigger an IRS audit.
6. Avoid Tax Scams.
If it sounds too good to be true, it usually is. Do not be fooled by a tax preparer that promises you a refund prior to preparing your tax return, or one that exaggerates your deductions and exemptions. Be prudent and wise when selecting any tax preparer. Also avoid organizations that protest against paying taxes alleging that it is unconstitutional. The Constitution allows the government to tax your income, so do not be bamboozled because you don’t want to pay your tax obligations. Ensure that you do not file fraudulent returns. Rely only on records provided to you by your employer and/or reputable entities. If you are not used to receiving a large refund and nothing has changed from prior years, there is a strong likelihood that your return is fraudulent, and you should contact the IRS immediately.
7. File all required returns on time.
The IRS may issue an audit because you have demonstrated a pattern of non-compliance by failing to file your returns on time. This is especially true for business owners as the IRS is more likely to audit a business if it demonstrates a consistent pattern of non-compliance For individuals, your returns are generally due by April 15. Most Corporate returns are due by March 15. If you are unable to file your tax returns by the applicable deadlines, be sure to file an extension. The IRS imposes penalties and interests for failure to file your return on time if you should have the misfortune of having a balance due on your return. Some corporations filing a late return may also have penalties and interest imposed even when no taxes are owed on the return. So file all required returns when due, and file on time.
8. Think twice before taking a home office deduction.
There is nothing wrong about taking a home office deduction on your tax return. However, this is one of the deductions which IRS views as a “red flag” for an audit. The reason for this is that the government knows that there is a lot of abuse in this area. Most of the people do not satisfy “exclusivity” and/or “regularity” requirements that mandate that, among other requirements, the home office space be used exclusively and on a regular basis for business purposes. And remember: “exclusivity” means no other use.
9. Stay away from overly aggressive tax preparers.
Once these guys get busted by the IRS, IRS is likely to audit all of such preparers’ clients. Remember that saying “my tax preparer did it” is not a defense. You are signing your tax return and you are responsible for everything that is there.
About Baruch College:
Baruch College is a senior college in the City University of New York (CUNY) with a total enrollment of more than 18,000 students, who represent 164 countries and speak more than 129 languages. Ranked among the top 15% of U.S. colleges and the No. 4 public regional university, Baruch College is regularly recognized as among the most ethnically diverse colleges in the country. As a public institution with a tradition of academic excellence, Baruch College offers accessibility and opportunity for students from every corner of New York City and from around the world. For more about Baruch College, go to http://www.baruch.cuny.edu/.