Retain tax savings by avoiding audits
However large or small your tax total is, the key to maintaining what you managed to save is to avoid an audit. Or if you get picked for audit at random, you want to be so well prepared that you’ll breeze through it sans penalty.
Once your file is selected for audit, the lid is off the box. There’s always the chance an innocent error will come to light and cause you to pay back taxes and penalties, more than wiping out whatever amount of tax you saved. So avoiding an audit is strategy #1 for tax savings.
It’s not worth trying to get away with a few hundred dollars in suspicious deductions if you end up losing thousands later in penalties and interest.
Nothing good ever comes out of an audit
We each have a huge financial motivation to avoid an audit. But possibly even more important than the potential of lost money is the lost time and added stress. Time required to pull out the requested old records from that box in the back of your storeroom, attic or garage. Time taken away from moving your business ahead. And stress worrying what the outcome will be.
So, why not do everything you can to not raise red flags that invite an audit? Or, if you are unlucky enough to get picked at random, have records to back up each deduction and show it is reasonable for your business so your audit is over a.s.a.p. and you incur no penalties.
Although some audits are selected at random, the IRS normally has better things to do than audit returns for no reason. Usually there’s some red flag on your return or within your industry as a whole that throws a return into the “check it out” pile at the IRS.