Even though taxes are an annual activity for most, it still can feel all too easy to accidentally mess something up as you go through pages and pages of information to file your return. This can understandably lead to a sense of anxiety every time tax season rolls around, particularly when it comes to the dreaded possibility of an IRS audit.
The good news is that the "percentage of people who actually are audited is extremely small," said TurboTax, and there are steps you can take to "reduce the odds that you will be singled out for that extra attention in the first place."
1. Triple check that you're reporting all of your income
Filing your taxes is "not a race," said The Wall Street Journal. In other words, it's perfectly OK — actually suggested — to slow down to make sure you have all of the paperwork you need to accurately complete your return.
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"The IRS already has this information when you file your return," said the Journal, so it's really important that you're not forgetting any income reporting forms, such as "W-2 wage statements and 1099s for other income." In fact, said Kiplinger, you should "report all income sources on your 1040 return, whether or not you receive a form such as a 1099." Also don't forget about any money you may have gotten throughout the year outside of work, like from the "sale of an asset, such as a home," said Investopedia.
To help avoid any oversights, you might plan to just sit tight and "wait for all your income reports, bank and investment statements, and other applicable financial paperwork to arrive before starting your tax return," said TurboTax. And if you're a freelancer or gig employee, remember that you "need to track income received throughout the year and report it on tax returns as earned income," said Investopedia, as you "may not receive income statements."
2. Play it safe with deductions, credits, and losses
"If the deductions, losses or credits on your return are disproportionately large compared with your income, the IRS may want to take a second look at your return," said Kiplinger. Other potential red flags for the IRS include "taking a big loss from the sale of rental property or other investments," alongside "bad debt deductions or worthless stock."
That said, you shouldn't hesitate to claim what's rightfully yours. Indeed, "if you have the proper documentation for your deduction, loss or credit, don't be afraid to claim it," said Kiplinger. Just make sure you have the proof to back up whatever you're claiming.
3. Take a second to review your return before filing
Even if you're feeling eager to just finish the darn thing, take a second before submitting your return to ensure your entries are accurate and that you've filled in everything requested. "One of the most common red flags for auditors — erroneous data entry — is also one of the most preventable," said TurboTax. Indeed, "the IRS' automated system will easily detect discrepancies, and it won't be obvious whether or not a discrepancy is accidental or on purpose."
Common mistakes to look out for during your review include "math errors" and "failing to sign the return," said Investopedia. But before you get too obsessive, remember that it is possible to correct a mistake in your return if you happen to realize it after the fact. You have the option of filing an amended tax return, or "if you catch a mistake early enough, you can file what’s called a superseding return — one that is filed after the originally filed return but submitted before the due date, including extensions," said the Journal.
