David Nelson is a Certified Public Accountant and he's sharing five key things you need to know about how IRS audits work.
“The IRS does some random sampling of audits. There's no way to totally avoid an audit,” said Nelson.
First, take your return seriously and know your odds.
“If you have a W-2 with just a Schedule "A" interest, taxes that sort of thing your odds of being audtied are 250:1,” explained Nelson.
Also, be aware that the IRS knows if you've been in a disaster or not so don't fake a flood loss.
“The IRS actually knows if there's been a natural disaster by zip code so unless it's a fire or a theft they are wondering why you are writing off a casualty loss,” said Nelson.
And listen to your preparer’s advice on the difference between a business and a hobby.
“They are really looking hard at the hobby losses – horses, mini farms, that kind of thing,” said Nelson. “You have to show a real income and a profit two out of five years. If you don't have it, it's a hobby. You don't get to write it off period.”
If you plan to deduct your mileage make sure you keep records. Finally, use an IRS enrolled agent or CPA like David to do your taxes. Because you could end up like some folks in King County who recently dealt with a bad preparer.
“There were 700 tax returns and the IRS audited 600 of them. You can run into a buzz storm if you don't watch for that. There are agents the IRS is targeting they watch those preparers very closely,” explained Nelson.
Bottom line, have receipts and you'll be fine.
Click here for more tips from Kiplinger on how to avoid an audit.