How to Avoid an IRS Tax Audit

The following is advice that I’ve received from accounting professionals on how to avoid an IRS tax audit. Keep in mind that I (the author of this article) am not an accountant myself or any type of IRS official. It’s still good advice, but for better advice, consult the right professionals.

There is a rumor based on statistics that the IRS selects the people/businesses that they audit from those who file their taxes on time. Its a random, lottery-type selection (too bad they don’t have the same luck from the real lottery) from the pool of people who filed their taxes on or before tax day. So in order to avoid an audit, request an extension and file later in the year. That way you won’t be in the pool of people that they select. There are some accounting professionals that believe this wholeheartedly even though the IRS will never corroborate it (Bradford Tax Institute). The rumor comes from statistics which indicate that most people who get audited did indeed file their taxes on time. It’s possible that the IRS has changed their selection process since this rumor began. However, there’s more than one reason to request an extension. Accountants and other tax professionals are busting their humps to get everything done in time during tax season, which means that it’s more likely that they’ll make a mistake. If you file an extension, then they have all the time they need to finish reviewing your books and making the necessary adjustments without any rush.

Of course, there are probably other ways that the IRS selects individuals and businesses for an audit. If you practice shady accounting and have all kinds of red flags to signal them, then they could easily audit you and/or your business whether you file an extension or not. So the best piece of advice to give or receive regarding tax audits is to be honest in your accounting and do only that which is legal!

Even if you get audited, the number one reason anyone gets fined after an audit is not whether they did anything illegal; it’s due to poor record keeping. If you don’t have the proper documentation to prove or justify every tax deduction, then they can’t assume you did it correctly. So keep good records. If you have good records, it will still be hassle to go through the audit. But at least you can finish it with an “in your face IRS, thanks for wasting the tax payer’s money by auditing someone legit”.

This article was not written by an accountant. Consult with a CPA or other accounting professional/tax adviser before performing accounting for your business.

If you have any questions (or answers to questions) related to this article, leave a comment below.