Kids are afraid of the monster under the bed; adults are afraid of IRS audits. Although the IRS is going to do a certain number of them a year, and there is no fool-proof way to guarantee you will never be a target, there are some simple ways to be careful during tax preparation and make yourself a little less interesting to them.
1. Check your numbers. Nothing is quite as enticing to the Internal Revenue Service as shoddy math and round numbers. If they think you may not actually know what goes on your tax return, it will be very tempting for them to come and take a look. And the IRS is not required to resist temptation.
2. Inconsistent reporting. If the numbers you are reporting on your tax return don’t match what is on your W2 tax form, then that sets off a red flag. Be careful when copying over amounts during tax preparation.
3. Small businesses reporting a loss. In fact, Schedule C is interesting for the simple reason that some people report income and losses incorrectly because there are no W-2 tax forms. Of course, there are plenty of legitimate losses in the business world. Just remember to keep records.
4. Meals and entertainment deductions. It is way too easy to abuse this one, and the IRS knows it. If you are going to use these deductions, again, keep good records and have legitimate reasons for these write-offs.
5. Home-office deductions. This is a special area of interest when it comes to Home-office deductions. To ensure you are correct, make sure that your home office and equipment are not used for anything other than legitimate business needs.