Easy Steps to Take to Avoid or Prepare for an IRS Tax Audit

Everyone hates preparing their taxes. Between navigating the convoluted labyrinth of forms and (potentially) paying out a large sum of money to Uncle Sam, it’s understandable why April is the least favorite month of many adults. But even worse than filling out tax forms is facing an audit from the IRS. The Defense Tax Group says that your chances of being audited by the IRS are less than 1% if your annual income is under $200,000. Naturally, the likelihood increases the more you make, but the bottom line is that most of us will probably never have to go through an audit.

However, that fact isn’t a reason not to pay close attention to your tax return. And it certainly isn’t a license to try defrauding the government. Even though the IRS doesn’t audit a large percentage of citizens, there are inevitably the 1 or 2% of people who do get audited. Needless to say, landing in that group can be a scary, stressful experience—whether it’s your individual tax return that is under scrutiny or the tax documents for your small business.

IRS Audit Red Flags

One of the reasons why many people take the “It could never happen to me” stance when thinking about IRS audits is the assumption that the IRS only targets intentional tax dodgers. Sure, the IRS is looking for people who are trying to defraud the government or get out of paying taxes. But the IRS can’t know for certain whether or not tax inconsistencies or suspicious financial activity are intentional or not without conducting an audit. All they can do is look for tax return activity that raises red flags. When these red flags are spotted, the IRS will flag those returns and audit the people or businesses that filed them.

In other words, even if you aren’t trying to hide taxable income or defraud the government, you could still be audited. As mentioned previously, individuals with higher incomes naturally attract more IRS interest, because the government has more to lose if those people aren’t paying their taxes. Certain jobs—particularly ones that tend to involves a lot of unreported tips and cash income—will also be under added IRS scrutiny.

Perhaps most often, US citizens end up being audited by the IRS because of mathematical errors, typos, or other mistakes on their tax returns. Maybe you accidentally wrote down a wrong amount when transferring income numbers from your W-2 to your 1040. Or perhaps you simply made a miscalculation somewhere along the line and ended up with a payment number that was lower than it should have been. Maybe you claimed write-offs you shouldn’t have.

These mistakes or misunderstandings of tax rules can happen to anyone. However, by double-checking your tax returns and staying as organized as possible throughout the entire process, you will have better chances of dodging an IRS audit. Or, at very least, you will be better equipped to handle an audit if the IRS does flag your return.

How Strong Document Management Software Can Help You Avoid an IRS Audit

Undoubtedly, organization is a big part of filling out your taxes correctly, avoiding IRS scrutiny, or getting through a dreaded audit unscathed. But while most American citizens have a folder for their annual tax documents—and perhaps even a filing cabinet loaded with past tax years—a smarter option is to go paperless and use document management software to archive all of your tax information. For instance, with eFileCabinet you can not only save all of your tax information in a secure digital format, but you will also have access to the various audit-ready tools that are built into the software.

If you run a small business, you might set up an eFileCabinet drawer to keep track of employee income and 1099 forms. If you are self-employed, you might scan in the 1099-MISC forms from all of your various clients or payers, to make sure your tax return isn’t torpedoed by one small piece of paper. Other taxpayers might use eFileCabinet to keep a running tally of eligible tax write-offs throughout the year, including receipts and exact monetary amounts.

Bottom line, when you use eFileCabinet, you not only store new digitally-created documents to the system, but you can also scan in paper documents, including tax forms, receipts, pay stubs, and more. This way, you or your business can have all tax information for any given year stored in one convenient, easily accessible place. Then, when the time comes to fill out your tax forms, you can open up your eFileCabinet drawer and find everything you need right there. Instead of digging around in a drawer for tax forms, receipts, and other stray pieces of paper, you can access everything on your computer screen, minimizing the likelihood of audit-causing errors or typos.

If you still do get audited by the IRS, eFileCabinet can simplify that process as well. One of the greatest stressors of an IRS audit is compiling all of the documents that an auditor will request. With eFileCabinet, those files are already all in one place. Best of all, with our Enterprise Access feature, you can give remote permission-based access to any person, anywhere in the world. This function makes it possible for an IRS representative to review your tax audit trail remotely, expediting the process and minimizing some of the business or personal life interruptions that comes with an IRS audit.

Are you ready for an easier tax season? Do you need a better way to prepare for the possibility of an IRS audit? Go paperless and try out the eFileCabinet document management software. You can learn more about our software today by visiting us on the web at www.efilecabinet.com. There is a slew of different resources of available on the site, from FAQs to feature lists. If you want to try out a free 15-minute demo of the program, you can request one by clicking on the “Free Demo” tab at the side of the screen and filling out the form with your information.

By | 2016-12-15T11:59:23+00:00 November 19th, 2015|
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