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Audit Avoidance

Proper preparation and documentation can help you stay below the radar of IRS auditors.

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This story appears in the December 2010 issue of Entrepreneur. Subscribe »

Every year, the Internal Revenue Service audits approximately 1 percent of U.S. taxpayers. Though the odds are slim that your return will be singled out, they increase dramatically if you run a cash business like a bar or restaurant, take a home-office deduction, make large charitable contributions or work for yourself. Like to splurge on fancy cars, boats or home improvements? Living large without documenting your income can raise red flags, too.

Deductions and expenses that are disproportionate to the taxpayer's income catch the IRS' attention, says Mitchell Eichen, a tax partner at Perelson Weiner, a New York City accounting firm.

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