Of the millions who file taxes, fewer than one percent will be audited, but if the IRS picks you, it can be grueling and expensive.
The IRS sometimes conducts audits at random, but most of the time agents base investigations on tax returns that seem to indicate suspicious activity.
Here are four tips to help you avoid those red flags:
- Don't make paperwork errors. Double and triple check your numbers to make sure you didn't write a "3" when you meant an "8". You'll be hit with a fine whether or not your goof was intentional.
- Beware of claiming too many charitable donations.
- Be careful with home office deductions. So many people are loose with their definition of "working from home," the IRS keeps close watch on that tax break.
- Be precise — never estimate your figures. If your return is full of nice, round numbers — like $1,000 or $500 for a business expense, the IRS may ask for proof.
One more quick tax tidbit: the IRS just announced it has a billion dollars in unclaimed refunds waiting for people who never filed their 2011 tax returns. If you think you may be one of them, follow these steps on the IRS website to claim your money.