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Approximately 1.5% of all taxpayers are audited every year. Despite this relatively small number, the IRS still causes many people to shake in their boots when contemplating the chance of an audit. The odds are low that you would be picked for an IRS audit because the IRS does not have enough personnel and resources to examine every tax return. Your chances of being audited are higher depending on income levels, profession, transactions and tax deductions. Here are some tips on high risk areas for audits, so you can ensure you are not on that list.
High-Risk Tax Audit Areas
Your chance of being audit rises as your income increases. Here are some red flags to the IRS:
The Difference Between Tax Preparation and Tax Planning
Tax preparation for the March 15th or April 15th return is not considered advance tax planning. It is merely tax compliance as opposed to voluntary tax reduction planning. Though returns aren't due until April, they cover a tax year that ends Dec. 31. Some of the best tax-reduction moves really need to be done early. They often take some advance planning. Getting a head start could make you a lot happier in April, giving you a bigger refund or a smaller check to write to Uncle Sam.
A. Reduce Your Tax Liability
By taking certain steps now, you can reduce the size of your tax bill otherwise due when you file your return. You do not want to overlook any deduction or credit that you can take to lower this year's tax bill. Managing what income you recognize or defer also can pay dividends as you focus on balancing your tax rates.
There are many strategies you can use as a business owner to keep more of your wealth and less away from Uncle Sam. I see too many people lose thousands of dollars of their hard earned money just because they did not plan a strategy or have no knowledge of the tax laws in this country. Here's a review of some tips from Diane Kennedy at www.usataxaid.com
Avoid audits as an employer: the IRS is looking at employers who hire independent contractors, so make sure you:
• Write a job description for the position which indicates limited control and an independent working environment
• Make sure your company's operating agreement and employment policies treat the position as an independent contractor
• Get a signed independent contractor's agreement between the company and the worker
• Have a completed form W-9 from each independent contractor you hire.
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