Most taxpayers will never have to worry about receiving an IRS audit, except for the one percent that do. However, if you’re a dental practice owner and earn a high income, you’re at a greater risk of getting audited by the IRS. Below are the steps you should take now to reduce your IRS auditing risk.
Use a calculator – The first step to reducing your risk of getting audited by the IRS is to check your math. Get your handy calculator out and double check, then triple check what you report. Math errors are one of the most common red flags the IRS computer system will look for in tax returns which can turn into an audit quickly. Along with the math on your tax return, be sure to check basic information like your business tax ID number and social security number.
Be extra careful reporting if self-employed – If you’re self-employed, you need to be extra conscientious with what and how much you report on your tax return. If you’re self-employed and filing a Schedule C form, you’ll have more options for individual deductions that are may accidentally be unsubstantiated.
Use care with certain deductions – There are some deductions that tend to raise red flags more than others. These include large deductions, vehicle expenses, business expenses, non-cash and cash charitable contributions, adoption credit and earned income credit. If these and other big deductions are on your tax return, be sure they are in fact appropriate for your tax return and what you claim is 100% factual. Be prepared to back up your deductions with receipts and records. If you’re reporting big expenses in your deductions that don’t align with your reported income, you need proof.
Avoid excessive entertainment and travel expenses – Another big red flag for the IRS are expenses related to travel and entertainment. When traveling for business, you’ll no doubt be reporting this expense on your tax return, so be sure these types of expenses can be backed up as necessary for your business before attempting to claim them.
Report all income – All income needs to be reported, whether you’re a salary employee or work for yourself. This includes entering income exactly as it appears on your 1099 form. Not only wages, but other income like jury duty pay, tips, bonus pay or investment income.
By taking these important steps to reducing the risk of an IRS audit, you can keep the chance of being flagged by the IRS to a minimum. The time it takes to double check your work and make sure the information is correct can save you the headache of dealing with an audit. It also makes sense to have a tax accountant who has the experience, skill, and expertise to prepare your return, as another strategy to avoid an IRS audit.