Getting audited on your investments

No one wants to be audited. And while your chances of being audited by the IRS are pretty slim (only about one percent of Americans are audited each year), it still helps to know how to avoid audits and what to do when you get audited on your investments.

What are the chances of being audited?
While some audits are entirely random, meaning there are no discrepancies in your paperwork and you were chosen at random, some of them are the result of things that don't add up or don't make sense in your claim. These are a few things that are said to increase your chances of being audited:

- You reported information that does not match the information the IRS has received on various forms from your employers, banks, brokers, and so forth.
- You reported complicated transactions related to your investments without providing clear explanations for them.
- You've been audited before, and these previous audits have resulted in sizable tax deficiencies.
- The information on your forms is incorrect, missing, or doesn't match the rest of the information in your files.
- You've made a number of mathematical errors on your forms, so your numbers are off.
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The following are some helpful tips that can help you to avoid getting audited on your investments:

Fill out all the information on your tax forms.
This may seem like a no-brainer, but many people forget to double check their tax forms, neglect to sign them, or even forget to turn them in. Many audits occur as the result of a social security number or a tax number that has been incorrectly recorded, or if the figures on the tax forms don't add up properly. By making sure the information on your tax forms is correct, you can reduce the chances of having your investments audited.

Be aware if you stand out.
If you stand out from an average person, your chances of being audited are also higher. For example, if you have over a million dollars in investments but only make $25,000 a year (according to your tax claims), the IRS might become suspicious. If you fall in one of these categories, make sure you have the necessary documentation to back your claims up.

If you get audited
If you do get audited on your investments, the following tips will help you:

Know your rights
If you do get audited, it's important for you to know that you have certain rights with regards to audits. These can be found on the IRS' website.

Stall
If you delay the audit by asking for extensions in order to get your paperwork in order, this can actually result in your favor.

Be prepared
If you do get audited, make sure you get all the necessary information and paperwork regarding your investments from your broker, tax preparer, or your investment manager. This will make the process run much more smoothly. The best way to be prepared for an audit is by keeping meticulous, well-organized, and detailed records of your investments and your transactions and by making sure all of the information on your files is correct.
expenditures and by making sure all the information you file is correct and complete.

The best way to avoid an audit is to be prompt and accurate in filing your return. If your investments are audited, make sure you're prepared, and you'll have no reason to worry.