Avoiding audits and preparing for scrutiny

There is no way to guarantee that a given taxpayer will not be audited, but some are more likely to draw the attention of the Internal Revenue Service than others.

Every American should be prepared for an IRS audit, since they could be selected randomly even if nothing in their tax returns triggers a closer look. It is especially important for small business owners and the self-employed, however. Day traders may find they are statistically more likely to be audited than the average American.

The most common trigger for an audit is a simple math error, according to Consumer Reports. These can happen to anyone, although careful attention and professional assistance may make them less likely. Having taxes prepared by a professional accounting firm may decrease the risk, although the IRS states that everyone should look over their own filing before turning it in, since they are legally responsible for it.

Tax records should be kept for a minimum of the past three years, although Consumer Reports suggests seven is better. The IRS usually does not look further back than three years when conducting an investigation, but it is possible.

When the IRS is determining who to audit, they look for certain signs of potential fraud. Among these are potentially excessive charitable donations. Proper receipts and documentation of gifts may become more important as the amounts given increase.

One common target for closer examination is business expenses that may be personal, such as travel costs, meals or the use of a home office. These are deductions that are relatively easy to falsify, making them suspect.