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Keep clean records to potentially avoid an IRS audit

Being audited may well top the list of taxpayers' worst nightmares. This process can easily consume a person's time, energy and money as it can be extremely frustrating to deal with the IRS for months on end. Fortunately, there are a few steps that one can take to potentially avoid an audit.

For individuals who own a business, it is important that they keep all business and personal expenses separate. If an action was taken for both personal and business purposes, such as taking a trip or having lunch with a friend who is also a client, it is probably best to keep these expenses listed as personal ones. It is also important that one does not list a hobby as a business. Keeping well-organized records is also vital toward avoiding an audit. Before making any deduction, one should ensure that he or she has the receipt or other evidence to support it. Keep all of these documents together with each year's tax return.

Individuals who receive money through self-employment, interest or other miscellaneous income may receive a form called a 1099. It is important to make sure that these forms match the information one provides on his or her return. If there is an error in the 1099 form, one should contact the person or business that sent it and request a new copy with corrections made to it. These documents should also be well-organized with the rest of one's tax documents.

A tax attorney may be able to assist clients who have problems with the IRS or who anticipate problems. He or she may also be able to assist clients by giving advice about how to avoid an audit and how to prepare for one if the situation arises.

Source: Forbes, "Three Simple Rules To Stay Off IRS Radar," Robert W. Wood, Feb. 6, 2013

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