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10 Tips to Avoid an IRS Audit

More Tips for Avoiding an Audit

You are absolutely entitled to make deductions for charitable donations. But if there are a lot of those deductions on your tax return, it might raise a flag for a potential audit.
You are absolutely entitled to make deductions for charitable donations. But if there are a lot of those deductions on your tax return, it might raise a flag for a potential audit.

7: Take Reasonable Charitable Deductions

A charitable donation is one of the few things in this world that's good all the way around. It helps people, it makes donors feel good about themselves and it can be written off of your income taxes. But because no good deed goes unpunished, your chances of receiving a visit from the IRS if you claim an unusually high number of charitable deductions goes way up.

The IRS works with the law of averages in many ways, this being one. Their supercomputers tell them the average amount people donate for each income category. Step way outside that amount and you may get hit with an audit. That said, don't stop donating to the charities of your choice. Just keep good records, get appraisals for high-value items you donate and be sure to file Form 8283 for all noncash donations above $500 in value [source: IRS Form 8283].


6: Claim Valid Business Deductions

Both the self-employed and employees can deduct legitimate business expenses on their tax returns. For employees, they must be expenses that your employer has not reimbursed. For the self-employed, all manner of deductions are available -- but take too many of them, and the IRS may come knocking.

That said, don't let legitimate expenses fall through the cracks. Meals, entertainment and travel are often genuine business expenses; just don't claim too much relative to your income. Documentation is essential here. Keep receipts, but also log the purpose of meetings and travel.

Cars are another often-overlooked business expense. Keep good records of business mileage, including where you go and for what purpose. Remember, if you claim the mileage deduction, you can't also claim expenses such as gas, insurance and upkeep.

If you work out of your house, you're sitting on a gold mine of deductions, including a portion of your mortgage (or rent), insurance and utilities -- plus equipment and office supplies. In 2013, the IRS made it easier than ever with a simplified home office deduction that allows you to deduct $5 per square foot of space used for business, up to a max of 300 square feet (91 square meters), or $1,500. To claim this deduction, you must use the space regularly and exclusively for business -- no working in front of the TV in the den, surrounded by kids, toys and cheese doodles, and writing off the whole space as your office. The IRS will know.

5: Document Alimony Payments

Alimony payments can be a trigger for the IRS because the rules are strict about what is and is not deductible for the payer. In general, the payer can deduct alimony payments provided:

  • They are made by cash or check;
  • They are made under a divorce decree or separation agreement;
  • They are called alimony in the agreement;
  • They end on the death of the payee; and
  • Alimony does not include child support payments or noncash property settlements [source: IRS Alimony].

Alimony payments received by a spouse are considered taxable income by the IRS. The IRS will match up the returns of payer and payee to ensure the alimony amounts reported are the same. Differences can be a trigger for a follow-up conversation.

4: Check Your Math

Check, double-check and even triple-check your math before filing your tax return. One mistake on your part can trigger extra scrutiny by the IRS, which is what you're trying to avoid. Using a software program can help, as most programs do most of the math for you. You still need to ensure you don't input your $45,000 income as $450,000, but you'll get some help on figuring your end result.

Along those same lines, if you find yourself without Internet access on April 14 and must fill out your return the old-fashioned way (that is, by hand with an ink pen), just be sure to be neat. Don't strike through and rewrite your answers. First, a handwritten return will get an extra set of eyes on it, rather than a computer scanner, and second, if the numbers can't be deciphered, you'll get a call or letter.