Questioning getting Audited this Year well you should be…Here is an Valuable article from Yahoo Finance that will help you get ahead in preparing your Taxes the correct way…
Worried about a tax audit? Maybe you should be. More Americans than ever may be subject to unwanted attention from the Internal Revenue Service this season as the government pumps billions of dollars into tax collection.
More than 1.4 million Americans were audited last year, the most in a decade. Even more audits are expected as the Obama administration plans to spend $8.2 billion in tax enforcement initiatives in 2011, a nearly 10% increase over last year.
Being meticulous with your tax return may seem obvious, but many people aren't careful enough. And with the IRS seeking to collect every penny it can this year, you could end up paying for even the smallest mistakes.
While the IRS doesn't reveal its secret formula for flagging returns, here are some tips to avoid popping up on the auditor's radar.
Self-employed? Prove it's legit
With a record-high jobless rate, many Americans have turned to self employment, making the IRS increasingly skeptical of the legitimacy of home-based businesses, said Robert Willens, a professor of taxation at Columbia Business School and president of Robert Willens LLC, a tax consulting firm.
More people are trying to turn hobbies into businesses in order to bring in a little extra money, but this won't fool the IRS. In order to prove your business is legit, you need to keep consistent and accurate records of income and expenses, said Willens.
To be even safer, he suggests maintaining a separate bank account for the business, registering the business with the proper authorities and hiring an attorney and a good tax accountant.
An activity is considered a for-profit business if the gross income for any three of the most recent five years exceeds the deductions taken for the activity. If the IRS determines that a business is not engaged in for-profit, you won't be allowed to take deductions of more than the gross income from that activity, said Willens.
High expenses of self-employed individuals will also provoke suspicion from the auditor, who will look closely at travel, entertainment and automobile expenses relative to an individual's income.
Overseas bank accounts? 'Fess up
As the government cracks down on offshore bank accounts, deposits abroad are likely to catch an auditor's eye this year. Read more
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