Mellody's Tax Tips for a Tough Year

How to get the most money back on your taxes and what to do if you can't pay.

ByABC News via logo
February 4, 2009, 6:32 AM

Feb. 4, 2009 — -- In tough financial times, getting taxes right the first time is more important than ever and as some of Obama's Cabinet appointments have proved, slighting the tax man can have devastating consequences.

Luckily, Mellody Hobson, "Good Morning America's" financial contributor and president of Ariel Investments, has some tips to help you avoid audits, collect on your return and survive this tax season. Check out her advice below.

The federal government has been increasing audits for the last decade.

The number of people audited more than doubled in that time. And tax experts say there is an even bigger push this year -- at the IRS and at the state level -- to help reduce big deficits by collecting more money from taxpayers. You should be paying close attention to your returns every year, but this year, you really want to make sure you've dotted all your i's and crossed all your t's.

The IRS uses a very complicated formula to determine who will get audited.

The name itself -- "the discriminate information function system" -- is enough to confuse most people. But that said, there are two things that will raise red flags for most auditors.

Having unusually high expenses, something like a $50,000 medical bill, can really put you under the microscope. You need to explain why you have the high expense. In this case, you could include the medical bills.

The other big red flag is deductions for charitable donations. The average charitable donation is around 2 percent of a person's income, so if the IRS sees a deduction that's much higher -- something around 10 percent -- that could raise suspicion. Again, you'll need to document why it's so big and you'll need to include receipts.