Wednesday, March 1, 2017

I know that is has only been a couple of weeks since I last mentioned audits, but it remains a hot-button topic this time of year – as it should be, really. It was reported last week that the number of audits the IRS is carrying out continues to decrease, but remember they are far from nonexistent.
That report seems to be what triggered this recent article on Forbes.com, which goes into ways to try to avoid being audited. Much of what is in that article is similar to my recent writing on the subject, but there were some new additions that I think are worth highlighting.
The first comes under the heading of “Call Home,” referring primarily to the number of college students away from home who may be filing their own tax returns, possibly for the first time. If they are doing such a thing, what will they mark it comes to whether they are a dependent on someone else’s tax return? And most importantly, will it match what their parents claim? This is something that a phone call will figure out in a few minutes. That time commitment is quite worth it to make sure that everyone’s return says the same thing.
The next thing heading I wanted to mention is “Don’t make up stuff.” Granted, this is as obvious as it sounds, but I enjoy the story shared to highlight the issue – a client at audit who claimed expenses (without receipts) with all round numbers, but not just to the nearest dollar, to the nearest hundred or thousand. It serves as a warning that if numbers look made up, the IRS will know it. If putting something on your return makes you uneasy, you probably shouldn’t’ do it.
There is, however, another topic in the article with which I wanted to raise some issue, and that is “Be as normal as possible.” Now sure, if your only goal is to not be audited, yes, you should be as normal as possible, for outlying numbers are ones that can raise red flags when the IRS is reviewing returns. But even if being as normal as possible may keep you from an audit, I don’t think you should withhold anything legitimate on a return, even if it lies outside the norm.
So think of the college student and his parents whose audit issues could be avoided with a couple of questions. Think of the business owner who didn’t keep good records and ran with guesses and estimates because they thought they were entitled to something. And then think of someone facing an audit because they knew they were due to more of a tax break than most in their situation.
Who would you rather be?

I think we will all pick the last of the three, and that is because they are the one who filed their return with not only confidence, but with the necessary knowledge. It’s a good thing you already know a tax professional that you can trust, isn’t it?

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