6 ways to avoid an audit

6 ways to avoid an audit

It may not be due to something you did wrong. It may even be triggered by an IRS error. But there are ways to reduce the chances of getting that dreaded letter.

1. Math mistakes

The biggest reason people receive letters from the IRS is addition or subtraction goofs. Fortunately, math errors rarely lead to a full audit. Still, double-check your math before you send in your return.

And if you receive a letter from the IRS saying you owe money, check your numbers first. Sometimes, an IRS employee misreads one of your numbers, or the number is keyed into the IRS computer system incorrectly. If the agency is wrong, send a letter with a printout of your calculations.

2. Mismatched interest and dividend reporting

If the amounts reported in supporting documents don't match the amounts on your return, you will get a letter.

There are lots of possible errors here. Sometimes, the IRS will enter Form 1099 information (investment, interest and other nonwage income) into its computers and erroneously key in the income amount or the Social Security number of the recipient. If the income isn't yours, get a letter from the bank or other payer and forward that letter to the IRS. If the amount is incorrect, send a copy of the Form 1099 mailed to you by the payer.

3. You're on the IRS hit list

Those who receive much of their income in cash are traditionally on the radar screen of IRS agents looking for unreported income. Be prepared to defend any non-income deposits into your accounts. Recently, the agency has also pinpointed small-business owners and the self-employed. Too many "business" cars were going to campus each September. Be prepared to substantiate your deductions.

4. You have a big mouth

Never brag about how you put one over on the IRS, especially on Facebook. The IRS has been successfully trolling such sites to find unreported income and tax cheats.

Internal Revenue Service whistle-blowers can earn rewards of 15% to 30% of the additional tax collected, including fines, penalties and interest. Scofflaws can be reported by filing Form 211 (.pdf file) or calling the IRS fraud hotline at 1-800-829-0433.

Everyone else: Zip it. Keep your accounting strategies to yourself.

5. You're exceptional

An IRS computer program compares your deductions with others in your income bracket and weighs the differences. This secret IRS formula, called the DIF Score, is used to select returns with the highest probability of generating additional revenue through audits.

Check programs like TurboTax's deduction finder and books like my "How to Pay Zero Taxes" to ensure you're getting all the savings you deserve.

6. You have the wrong preparer

Let's face it: Some tax preparers are less than professional. Some, unfortunately, are crooks. If your preparer promises you a refund before checking all of your paperwork, run as fast as you can. That preparer is going to be taking illegal or inflated deductions, and, when the IRS finds out, you're going to be the one who pays the bill, plus

Colonial Income Tax Preparation Service, located at the gateway of Historic New Castle Delaware can help you with a full range of tax services.  Colonial Income Tax Service staff members include a Certified Public Accountant and several tax preparers with many years of experience.  Our services include income tax preparation for your Federal and state income  tax returns, and assisting you with tax planning opportunities. We also do business returns, including corporations, partnerships, LLC'S and trusts.

The fees we charge vary depending on the complexity of the tax preparation or planning services you need.  We believe our fees are both reasonable and competitive for the professional services we provide.

The fee range for our service begins at $100 for Form 1040 with standard deduction, and $250 for a Form 1040, with schedule A - itemizing your deductions, and schedule B - listing your interest and dividends and, state return.  Additional forms will increase our time and fee charges. 

We offer a $20 discount for new clients and our initial meeting to discuss your needs is FREE.

To begin our service we will interview you using our tax data organizer which lists a host of questions and documents we will need to prepare your return.  Based on the interview we can prepare an estimate of our fee charges.  You decide whether we proceed with your tax return preparation.

In payment we accept cash, checks, money orders, VISA and MasterCard. 

Call us today, 302-322-1135, to arrange a FREE initial consultation.