Monday, February 9, 2009

How To Avoid An IRS Audit Part 1

It is that time of year again when we must collect our W2's, K-1's, interest and dividend statements, mortgage statements, and any other doccuments that are neccessary to file our tax returns. Now if you are interested in avoiding an IRS audit, there are certain situations or deductions that are more likely to attract IRS attention.

1. Mathematical errors.

The IRS checks every return for math mistakes and if it finds a computation error that resulted in an underpayment of tax, will send a letter with the corrected figures and a bill for the balance due.

2. Differences between documents and returns.

If the IRS finds a mismatch between numbers you use on your return and what appears on your W-2s, 1099 statements or other documents, you'll likely get a letter asking you to explain the discrepancies.

3. Unusual, or unusually large, charitable deductions.

Making in-kind donations like a car that is valued at more than $500 requires attaching a specific acknowledgment form, 1098-C, from the charity. Canceled checks or receipts are typically all that is needed to back up other charitable deductions. But for anything over $250, you need written proof that shows any benefits or goods you received in exchange — for instance the value of a meal you had at a fundraising dinner. Larger donations, such as land, art or stocks, may require additional documentation.

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