Avoid IRS Audit - How to File Taxes 2011 Properly

As you may know, some tax returns are audited by the IRS while some just ignored. According IRS, they audit only 1 percent of all tax returns annually. They simply don't have enough resources to check all of the internal tax returns. So chances are pretty low that you will be checked by IRS if you are being honest with your taxes.

However, the chance of you being audited will significantly increase depending on different factors as incomes and losses, credits taken, math mistakes etc. being reported in taxes.

To avoid IRS audit pay attention to these red flags that increase your audit chance.

Here are the most important things what to pay attention to and how to file this year's taxes properly:

Failure to report all taxable income
The IRS receives copies of all 1099 s and W-2 s that you receive during a year. Make sure that you report all of this income. Or IRS computers will compare the data and find out the mismatches.If you received the 1099 form that is incorrect, make the issuer to file corrected form.

Returns that claims home buyer credit
First-time home buyers need to attach a copy of their settlement statement to the tax return. Longtime homeowners should attach documents of prior ownership of a home incl insuranse and property tax records. All claims for this credit are being screened. Last year more than 260 thousands returns were selected for correspondents audits because filers did not attach the necessary documents to their returns.

Claiming large charity deductions
IRS has found an abuse on audit with those who take large deductions. Be aware if your charitable deductions significantly larger then your income. Expect the IRS knocking on your door! Also be sure to get an appraisal for property donation or if you fail to file Form 8283 for donations over $500.

Home office deductions
The history has shown that many people who claim a home office, do not meet the requirements to take this deduction. If you do qualify, you can deduct a percentage of a rent, phone bills, insurance, and other proper costs. However to use this deduction, the space must be used exclusively and on a regular basis as your principal place of business.

Business dinners and traveling
Schedule C is great for self-employed professionals. But IRS agents well know that self-employed tend to claim too excessive deductions. The most under reporting income and overstating the deductions are done by them. Small business owners are target as well as sole proprietorship.

Claiming your vehicle as 100% business use
When you do that, you have to list on Form 4562 what percentage of a car (or other vehicle) during the year was used for business purposes. Claiming 100% in the Schedule C, will bring the IRS strait to you. Make sure you keep very detailed mileage logs and dates for every road trip during year.

Writing-off your hobbies
Be aware claiming dogs breeding, shooting range, cartings etc. This sound more like fun for IRS than business.

Cash in business
Taxis, laundry and alterations services, bars, restaurants and other cash businesses are less likely to accurately report taxes, and IRS knows it too.