How to Reduce the Chance of an Audit

Here are some suggestions to help you file a return that won't raise any audit eyebrows at the IRS.

There is no surefire way to audit-proof your tax return. Nevertheless, there are numerous steps you can take to reduce your audit risk:

• Prepare your tax return by computer. A neat, computer-prepared return looks more official to the IRS classifiers and fits the IRS bias favoring computer processing. Most professional tax preparers now use computers. There are some good PC and Macintosh programs, such as Intuit's TurboTax and MacInTax, that you can use to prepare your own return. You can prepare your return online by using TurboTax for the Web at www.turbotax.com.
  If for some reason it isn't possible for you to use a computer, be certain to print carefully. A messy return cross-outs, sloppy handwriting, smudges almost screams "audit me!" It tells the IRS that you are careless and disorganized.
  
  
• Don't use round numbers for deductions for example, $1,000 or $12,000 instead of $978 or $12,127. It's an indication that you are estimating things rather than keeping good records.
  
  
• If you claim large deductions for unusual items, such as an earthquake, flood, or fire loss, attach documentary proof to the back of your tax return. Copies of repair receipts, canceled checks, insurance reports, and pictures are advisable. This won't stop the IRS computer from flagging your return, but the documents should catch the attention of the IRS classifier who next screens computer-picked returns for audit potential. If she thinks your documentation looks reasonable, you won't get audited.
  
  
• Avoid filing an income tax return with Schedule C, Profit or Loss for Business, that reports a net loss from a small business venture. IRS auditors go after these returns like bees toward honey.
  
  

• Report side-job income as other income on line 22 of your tax return. Try this only if the income is relatively small, and you are not claiming any business deductions against it. Technically, side-job income is usually reported on Schedule C, Profit or Loss from Business. But filing a Schedule C undoubtedly increases your audit chances.
  
  
• Don't use electronic filing or the IRS preprinted address label on your tax return. These enable the IRS to get your return into the processing cycle, including the audit cycle, more quickly than otherwise would happen. Anything that slows down the IRS machine can't be bad. On the flip side, however, using electronic filing or the label usually means that any refund will come faster. If you expect a refund but fear an audit, you'll have to weigh the pros and cons.
  
  
• Live in a low audit area. Your audit chances are radically different depending on where you live. For example, Nevada taxpayers are audited four times more than people in Wisconsin. While moving your official address to reduce your chance of audit is extreme, it might make sense if you travel most of the time or have addresses in several areas. If you have flexibility in choosing your tax reporting address, choose the one with the lower audit rate. If you're really interested in this, ask your tax pro or visit the IRS local office information reading room.

To Learn More

For secrets, tips and insider information on how to deal with the IRS, get Stand Up to the IRS, by Frederick Daily (Nolo).