Your wealth
Avoiding audits

Bad news: If you file Schedule C with your tax return, as many real estate professionals do, your chances of being audited go up. But there are steps you can take to make your return less attractive to IRS auditors.

Document as much as possible

Keep detailed receipts, mileage logs, worksheets, and any other files that can help you justify what you record in your return. Some tax pros suggest attaching background material and explanations for items that might arouse suspicion, including any figures that have changed drastically from one year to the next. Maintaining separate accounts for business and personal use will help you keep your records accurate and easier to document.

Stay away from the miscellaneous

When categorizing deductions and expenses, try to put items in defined categories rather than lumping them under the "miscellaneous" heading. IRS employees may think that you will have difficulty substantiating large miscellaneous totals.

Match up amounts

The IRS checks the amounts stated in your return against income reported from other sources–like W-2s and 1099s–so make sure you report all your income exactly as it appears on those statements.

Watch your deductions

Though you should take all deductions to which you are entitled, it might be helpful to know that when deductions add up to a large percentage of your income, your return may trigger an audit. Some experts say your risk goes up after your deductions top 30% of your adjusted gross income.

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