Personal Finance

How to Avoid a Tax Audit


There’s nothing taxpayers can really do to assure themselves of not being audited. But they should be aware of factors that increase their chances of being audited by the Internal Revenue Service.

Only about 1% of individuals will have their tax returns audited. Still, it’s something that most taxpayers fear. And if you’ve ever been through an actual audit, you know how nerve wracking and utterly frustrating the process can be.

So who is at a greater risk of being audited?

The IRS is also on the lookout for taxpayers who have unusually high deductions when compared to their income. Taxpayers whose reporting doesn’t match the information received by the IRS from their employer, their bank, or other third parties are likely to hear from the IRS.

How do you protect yourself? Keep meticulous records. The taxpayer has the burden of proving their income and deductions. If you can’t prove a number, the IRS can estimate a number that is likely to be unfavorable to the taxpayer. Even if you are unlucky enough to be audited, complete records will be the taxpayer’s best hope of getting through the process unscathed.

Tracy Coenenis an On The Money contributor, fraud investigator and forensic accountant, and is the author of Essentials of Corporate Fraud.