Commentary -- How to reduce your chances of an IRS audit Published April 3, 2012 By Elaine Reeves 18th Wing Legal office KADENA AIR BASE, Japan -- This year the tax filing deadline of April 17 is approaching fast, but instead of talking to you about how to file your taxes, I thought a little chat about how to avoid tax audits would be more beneficial. Before all you taxpayers who have not yet filed begin to panic and scramble to the tax center, don't forget that if you are living overseas on April 17 you have an automatic 60-day extension to file; however, that 60-day extension doesn't apply when you have to pay. If you have never been audited, you probably fall into one of these categories: You're still young, you haven't made tons of money, or you're just plain lucky. The fact is that many taxpayers are audited during their adult lives. It's just a matter of time and probability. You can take some common-sense steps, honesty being the top priority, to reduce your chances of having to face an audit. Here are some tips for lessening your chances of being audited and avoiding all the time and costs associated with an audit. Double check your return for accuracy Whether filing electronically or the traditional way, and whether you prepare your own return or have someone else prepare it for you, review your return before it is sent in. Have you included all your income? Think about the different accounts you had during the year. Do you have interest and dividend statements for all your accounts? Check your W-2s and 1099s against your tax form and make sure that you wrote the numbers down correctly. You signed the return so ultimately you are responsible, not the person who prepared the return. Declare all your income Thanks largely to computer cross-checking, the Internal Revenue Service has many ways of finding unreported income. Gross income is all income received in the form of money, goods, property and services that is not exempt from tax, even if you do not have a W-2 or 1099. It includes income from sources outside the U.S., even if part or all of that income can be excluded, including the income earned by a foreign-born spouse if filing a joint tax return. Gross income may include part of Social Security benefits received and certain scholarship and fellowship grants. · Income that is taxable must be reported on the taxpayer's return and is subject to tax. · Income that is nontaxable may have to be shown on a taxpayer's return but is exempt from tax. When you knowingly hide income, you can face substantial penalties and, depending on the amount, you can also face criminal prosecution. Don't itemize People who itemize their deductions on Schedule A are far more likely to be audited because they have the opportunity and temptation to cheat. By all means, if you can legally claim more deductions by using Schedule A than you can with the standard deduction, then itemize. My advice is to always keep receipts. Don't cheat It may have taken the IRS a while to wise up, but now it's methodically figuring out different ways that people cheat. The next step for the IRS, after they figure out how people cheat, is to come up with ways to catch cheaters. A good example of this is charitable contributions. A couple of years ago proof of a donation was not required unless the donation was more than $250. Now, documentation is required even if you put $10 in the weekly church offering. Stay away from back-street refund mills Although this advice doesn't apply to the majority of tax-preparation firms, unfortunately, some firms out there fabricate deductions. Run away as fast as you can from tax preparers who tell you that they have creative ways to reduce your tax bill or those who base their fees on how many tax dollars they can save you. Don't forget, that tax preparer will be long gone when the IRS comes calling for its money. Don't be a non-filer The IRS has a special project with a mission to go after the millions of non-filers and it has assigned hundreds of agents to this project. When you get caught, which is just a matter of time, in addition to owing back taxes, interest, and big penalties, you may also face criminal prosecution and end up serving time. So keep a clear conscience, continue to enjoy your freedom, and file your tax returns. Remember, better late than never! Carry a rabbit's foot Even if you do everything perfectly, you can be audited simply because of bad luck. Every year the IRS audits some taxpayers at random. Although such an undertaking may seem like a colossal waste of time to you, this effort provides the IRS with valuable information about the areas of tax returns where people make the most mistakes, and also about the areas where people cheat! So, if you do get an audit notice, don't assume that you did anything wrong. However, and I cannot emphasize this enough, do not ignore that letter from the IRS. Read the letter carefully to find out what they are asking for and contact the IRS. Be warned, if you ignore the IRS and they think you owe them money, you may either find your paycheck or your bank account a little light. Who is entitled to help? The tax center is open to all active-duty service members, Department of Defense civilians, SOFA-status contractors and Department of Defense Dependents School teachers, as well as their families on Okinawa. Where can I get help? The tax center on Kadena is located in building 1460 on Wilkins Street. The walk-in hours are Tuesday-Friday from 9 a.m. to 2 p.m. You can also call 634-7418 for more information.