What can I do to lessen my chances of being audited?
UPDATED: August 19, 2012
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The IRS typically looks for discrepancies in the following: Schedule A (itemized deductions, Schedule C (profit or loss from a business) and Schedule F (profit or loss from a farm). For Schedule A, in which you itemize deductions for such items as charitable expenses and mortgage interest, the IRS tends to audit a smaller percentage of returns where the deductions are less than 35% of adjusted gross income. If you go above 44%, your risk of audit increases substantially.
If you file a Schedule C for your business, try to keep expenses under 52% of gross income. Any expenses over 67% of income is a red flag to the IRS for an audit. With Schedule F, losses over 50% of gross farm income invite scrutiny, while losses over 71% may trigger an audit. If you file both a Schedule A and a Schedule C, add your Schedule C expenses as a percentage of gross income with 1.5 times your Schedule A expenses as a percentage of your total gross income, and keep this figure under 10% of your income.
Finally, no matter what you do, there is no avoiding a random audit. More than 150,000 taxpayers are subjected to random audits each year.