Bullet-proofing your tax return

March 12, 2012 8:45:21 PM PDT
It's tax time again, and the last thing you want to worry about is an audit.

If you earn less than $200,000 per year, your likelihood of being audited is about one in 100. Those odds go up significantly for certain types of taxpayers. People who have their own business and itemize deductions for home office, telephone, and business meals need to be extra careful.

Business expenses that could be personal, such as meals or travel, are one of the first things the IRS goes after, says Consumer Reports. Keep a careful calendar of your business meetings and hold on to the actual receipts and not just your credit-card bills. And if you claim a deduction for a home office, be sure it looks like an office. It's best if it does not double as a laundry or playroom.

Another red flag that can attract IRS attention is excessive charitable donations. If you are donating 50 percent of your income, that can seem out of place. Again, make sure to get dated receipts. They are required for cash contributions over $250 and for gifts of goods like clothes or furniture.

You should keep your tax records for as long as the IRS can audit you, which is three years. But just to play it safe, Consumer Reports recommends holding tax records for seven years.

And last but not least, check the math! Believe it or not, simple mathematical errors trigger the most notices from the IRS.

If you prepare your own taxes, two of the leading programs - H&R Block at Home and Turbo Tax - offer some level of additional help in the event of an audit. But you might need to buy the audit protection in advance.

Consumer Reports has advice on finding a good tax preparer.


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