5 Ways to Avoid an IRS Audit

Real-Time Advice: As the U.S. cracks down on tax dodgers, some tips for keeping the taxman away.

The Treasury Department's aggressive crackdown on offshore tax dodging announced Wednesday is sure to heighten many people's fears of drawing IRS ire, say tax experts -- even among those who don't stash millions abroad.

There may be reason to worry. The number of "face-to-face audits" the IRS conducted on taxpayers reporting incomes over $200,000 increased 34% in 2011 from the year before to 78,392. Of course, the overall chances of such unpleasant scrutiny remain fairly low, about 1% for all taxpayers last year. "Filing a complete accurate tax return is obviously one of the best ways to avoid an audit," an IRS spokesman said.

Here are five less-obvious tips for keeping the IRS away.

Use a Calculator

Getting the math wrong is the single biggest reason people fall under the spotlight of the IRS, experts say. While the reason could be innocent -- like not properly understanding deductions or the complexity of even simple accountancy -- it can lead directly to an audit, according to Patrick Cox, CEO of tax consultants Taxmasters.com. Indeed, it has the same effect as taking aggressive deductions like high mileage on air travel. Cox says that the IRS does not randomly select returns to audit. "If a taxpayer is being audited, the IRS believes that taxpayer owes more money," he says. And that could be up to three years after the tax return is filed.

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Explain Those Unusual Deductions

The IRS tends to do a double-take when taxpayers file a return with larger-than-usual deductions for things like home office expenses or goods donated to charity, says certified public accountant Benjamin Tobias, president of Tobias Financial Advisors in Plantation, Fla. Their usual assumption, he says: you've exaggerated to claim a bigger break. In those cases, a note of explanation -- say, you moved, hence the large donation of household goods -- can be enough to head off an audit. "Anything you write is better than nothing," he says. But it's still a smart idea to keep all the proper documentation to back up the claim, just in case.

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Get Paid Less

For individual returns an adjusted gross income of more than $1 million the chance of being audited is eight times that of the average middle-class worker, according to the 2010 IRS data. The IRS audited 8.4% of returns of those earning above that and only 1.1% of those below. "It's worth making sure you have a qualified professional auditing your returns because your risk of being audited increases exponentially," Bill Smith, managing director of CBIZ MHM's National Tax Office. Smith says it may be worth staying under the $1 million a year mark -- if it can done quietly and legally. "If you have the luxury of deferring income into the following year it would make sense to do that," he says.

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Don't Boast on Facebook

Scouring through a person's motor vehicle and employment records can tell an IRS investigator whether someone has moved to another state or been given a high-profile promotion. But the taxman has found that social networking sites like Facebook and Twitter are fertile grounds for detecting fraud and finding dodgers. Indeed, experts say even seemingly innocuous posts can reveal secrets: As SmartMoney.com has reported, a simple photograph posted online can be give away someone who is supposed to living in far more modest circumstances.

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Self-Employed? Be Extra Careful

The IRS believes that a huge part of the tax gap -- the amount of tax owed versus what's actually paid -- is found in "Schedule C," the tax form for the self-employed, Bill Smith, managing director of CBIZ MHM's National Tax Office. Individuals who are self-employed and earned $100,000 to $200,000 a year were audited five times more than the average employee, according to the latest IRS data. "The reason is you have a lot more options for putting down unsubstantiated deductible amounts," he says. The IRS already knows how much mortgage interest paid, real property taxes and salary have been paid by employees as the government agency has already received it from third party sources. "However, those who are self-employed are doing their own bookkeeping principally on the deduction side," Smith says. "That means they're free to make things up."

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