7 Tips to avoid getting audited

April 13, 2011 8:25:13 PM PDT
Taxes are not due until April 18th this year because of a Washington Holiday.

You will be happy to know your odds of being audited are very low, less than one percent.

However, if you are still worried, here are seven tips on how to avoid ending up on Uncle Sam's audit list.

Samantha Pleet is a Manhattan fashion designer who has branched out on her own.

But she knows running your own business is a red flag to the IRS and if you say audit, it brings up some intense feelings.

"Scary, because receipts, time, it just is not something you want to go through," Pleet said.

Eyewitness News has seven tips to help you avoid getting audited.

Number 1: Don't make mistakes on your return. Double check the math and write legibly.

Number 2: Don't overdo your charity deductions. You may feel generous, but Uncle Sam has a formula for what it typically sees, and anything above that is a red flag.

Number 3: Know the rules for a home office. For example, the part of your home for business must be used exclusively for business. Dinning rooms don't count.

Number 4: Make sure your W/2 matches your return. People who rely on tips and cash are red flags to the IRS.

"All your income gets reported to the IRS. All your W2's your 1099's. 1098's. everything from interest to what your personal wage is," said George Quntana, of Smart Tax.

Tip number 5: Explain large changes in income in advance to the IRS. With so many people getting laid off and then getting jobs at different pay scales, it doesn't hurt to attach an explanation to your return.

"Client changed job due to bad economy, attach it to the return and send it in," Quntana said.

Tip number 6: Beware of turning a hobby into a business expense. Teaching golf swings on the side could end up getting you audited if you try to deduct related expenses.

Number 7: If you are putting in for the first time home buyer credit, make sure you actually qualify for it and then back it up with the proper documents.

In the end, if you still get audited, don't panic.

A recent CNN poll found 78% of all audits are handled through the mail, with the IRS simply wanting a written clarification on something it found in your return.