It is common to have apprehensions about tax audits. You may view it as an overwhelming, time-consuming process that potentially could lead to additional tax liability.
While you cannot guarantee the prevention of a tax audit, you can take steps to reduce the likelihood by understanding why tax audits occur and implementing accurate and consistent reporting practices.
File your taxes accurately
Mistakes on your tax return are one of the most common triggers for a tax audit. Double-check your tax returns for errors before filing them.
Report all your income
The Louisiana Department of Revenue is responsible for conducting tax audits to ensure tax compliance. They get copies of all 1099s and W-2s under your Social Security number. If you do not report some of the income mentioned in these forms, it can raise a red flag, possibly leading to an audit.
Make sure to accurately report all your income from employment, investments and side gigs to ensure consistency with the information the Department of Revenue has.
Do not make large cash transactions
Federal law requires banks to report cash transactions over $10,000. These transactions could lead to scrutiny from the Department of Revenue. If possible, avoid making large cash transactions to stay under the radar.
Keep thorough records
Maintain clear and detailed records of all your tax-relevant transactions. If you can substantiate the figures you report on your tax return with solid evidence, you are less likely to face an audit.
Be mindful of deductions and credits
Unusually high deductions or credits in comparison to your income can attract the Department of Revenue’s attention. While you have every right to claim all eligible deductions and credits, be careful not to overstep and always have documentation to back up your claims.
While the complete prevention of a tax audit is not in your hands, your actions can significantly influence your odds. Following these practices will not only minimize your chances of facing an audit but also prepare you to handle one confidently, should it occur.