1. Know your risk
You want to be able to document every deduction and keep that proof for at least three years from your filing date. Certain ZIP codes, like those in higher-income neighborhoods, have a higher audit rate, says tax attorney Frederick W. Daily, author of five tax-related books, including Stand Up to the IRS.
Self-employed workers also tend to get a red flag, especially when they claim a business operating loss "of any size," says Daily. Also on the IRS's radar: those whose overall deductions approach 50 percent of their reported gross income.
2. Avoid round numbers
A tax return with lots of round numbers — $1,200 in travel expenses or $1,500 in charitable contributions — suggests that you're just estimating those claims, "and the IRS loves to go after people who don't keep good records," says Daily. "You don't need to include cents, but use the closest accurate dollar amounts, such as $1,260 or $1,525.
3. Explain on paper what you can't with e-filing
Do-it-yourself tax preparation software makes for easier and more accurate tax return preparation. But you can get into trouble if you file electronically with software that has no capability to include disclosure statements. You should include such explanations "whenever there's something unusual in your return," says Eva Rosenberg, who is an accountant and an "enrolled agent," a person authorized to represent taxpayers before the IRS.
If you use a software program, Rosenberg suggests not using its e-filing feature if there's anything that might leave an IRS officer wondering. "Print out your return and attach an explanation statement and mail it in," she says. A new feature this year: "You will able to include PDF attachments with certain forms. Ask if your software supports this."
In many cases, a type-written note will suffice to explain such red-flag issues as losses for a small business, a high mortgage-interest deduction or a home office deduction for a regular W-2 employee. In other cases, you'll be able to attach signed documents related to charitable contributions or dependents.
4. Double-check your math
It's no surprise that sloppy arithmetic on a paper return can flag an audit. "People list correct numbers but on the wrong line," says Rosenberg. So make sure sums are not only correct but in the correct place.
5. Mind each line
Don't forget the easy stuff — your Social Security number, address and signature. "It's a myth that if you fail to sign your return, you will automatically be audited," she says. "The IRS will simply send it back for your signature. But if you repeatedly forget to sign and the IRS believes this is a deliberate pattern, you could face fraud penalties, and unwanted attention on your future returns."
Next page: Document mismatches and other things that usually trigger an audit. »