- Report all your income. You must tell the IRS about every penny of income that you make, including stock dividends, cash payments, gambling winnings, jury-duty payments, and unemployment benefits. The amounts must match the forms that are submitted to the federal government by your employer, banks, or third-party payers. If there is even one digit off, the IRS could note the mismatch and generate an inquiry.
- Be cautious when claiming deductions. Be prepared to back up every deduction—particularly car write-offs, charitable contributions, and business purchases—with written documentation, especially if you are self-employed or make more than $100,000. And be precise: Deductions rounded to the nearest hundred-dollar amount could up your risk. “That signals you are not keeping records,” says Frederick W. Daily, author of Stand Up to the IRS (Nolo, $35, amazon.com).
- Check your work. A simple math error won’t automatically trigger an audit, but it can give the IRS a reason to revisit your return, which increases the odds that it might find other problems. When figuring your taxes, check your math. Twice. Or hire a reputable tax preparer (but never sign your return until you have reviewed it). You can also use a computer program, like Turbo-Tax. The software won’t make silly mistakes.
About one in every 99 returns is flagged for an audit. Here’s how to reduce your odds of attracting IRS attention.