After spending a lot of time and possibly money on your tax returns the last thing you want to deal with is an audit from the IRS. The best way to avoid an audit is by filing a return every year and being complete and honest with it. However, the IRS may still qualify you as a candidate for being audited.

What to do to decrease your chances of being audited? If you are not a tax expert, your best bet would be to hire a professional to do your taxes. This will help eliminate any confusion you have regarding your taxes. Also, you should never lie or hide anything from your preparer. For example, if they ask you to disclose an offshore bank account, then you should do so. Advanced computer technology has made it easier for the IRS to fish out any returns that seem suspicious. So if your return does not portray a full picture of your financials, then the chances of you being audited will likely to increase.

How does the IRS choose who to audit? The IRS uses statistical sampling to pick out whom to audit every year. It also publishes the Data Book which tells us what the IRS looks for and how it chooses among specific groups to audit. For example, in 2010, 1% of individuals with income of less than $200,000, 8% of individuals with income greater than $1,000,000 and 98% of corporation earning $20 billion or more were picked to be audited. Key triggers like missing schedules, excessive deductions or a complex return increase chances of being spotted by the IRS. Sometimes, just being a high profile, high net worth individual can get the agency’s attention. The IRS is known to target individuals whose incomes make headlines such as lottery winners, executives and start athletes and entertainers.

So what do you do if you are selected to be audited? Well for starters, proper record keeping is a life savor when dealing with audits. If you are disorganized, then you might want to apply for a delay to get your paperwork ready because the IRS will want support for every number recorded on the return. For example, if you deducted $10,000 in expenses, then you should be able to supply an expense log to support that claim.  

Where does your audit take place? Generally, you send in your support via fax, e-mail or mail to the agency. In some instances, you can be selected for a field office audit, where you present your documentation at an IRS office, or an IRS agent visits your premises.

The IRS audit can be a burden and a time consuming process. Even though there are ways to minimize your chances of being picked, you should still prepare yourself for a chance of being audited.