Tax Tip Series: Increase in Tax Audits and Prepaid Audit Services

In past years, we have seen an increase in individual tax audits. The most recent statistical data released by the IRS for the tax year 2010 shows that during that year, more than 1.58 million tax returns were examined by the IRS, focusing on more high-income taxpayers than ever. Audits of individuals with income of $200,000 or more increased almost 6% from 2009, while audits of individuals with income of more than $1 million increased almost 15%.

To avoid the risk of an audit, many of our clients tell us to not include anything on their tax returns that could be a "red flag" to the IRS. As a firm, we believe if you are eligible for the deduction then you should take it. For example, if you really gave a lot more to charity this year than you did last year, then you should take the additional deduction. Or if you are hurt and have a large amount of medical bills, you should be entitled to the deduction on your return.

If you save good backup—actual, legible receipts—for your deductions, you should not worry about getting a tax notice requesting to see your documentation.

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