Instances That Will Merit an IRS Audit
Any taxpayer will be glad to know what will catch the attention of the IRS enough for them to subject you to an audit. For some time now, majority of the tax returns are processed by IRS computers. The general idea is that the computer systems are programmed to simply look for anything that is considered ‘out of the ordinary’, and when each tax return is compared to the statistical average, or what is considered normal when the group is examined as a whole, it treats that difference as a flag. This flag raises the chances that such particular tax record will be audited. After the computer flags the tax record, it may be manually rechecked by an employee of the IRS, depending on the severity of the discrepancy that the IRS computer found. In some cases, the IRS computer will simply print out a notification that will delivered directly to the taxpayer.
The good news is if you get audit flags, you will not be immediately audited by the IRS. It only implies that your chances of getting one are significantly increased. Remember though that there are flags that you can effortlessly avoid. One of these is submitting sloppy and incomplete forms. Avoiding potential IRS problems would necessitate you to do your math computations correctly and to provide information completely. Otherwise, the computers can’t figure out the entries in the tax return and an IRS agent will need to review this. However, filing tax returns electronically will somehow solve this simple issue as the programs have math and field correctors that can identify erroneous computations and lacking entries.
Another scenario that will put up red flags is the non-declaration of all of your earnings. Basically, anyone who gives you a W-2 or 1099 also sends a copy to the IRS. Thus, the IRS knows how much you have really earned for the year and if you miss to report any of those, they will surely put you through an audit. To protect yourself from potential IRS problems, remember to make miscellaneous income, dividends and interests part of your annual income.
Claiming that you are earning below the minimum wage will also raise suspicions. Conversely, if you claim that you are making a great deal more than the industry norm, expect to be flagged and potentially audited. In fact, a minimum of 5% of all taxpayers are audited each year. In the same manner, those who have an annual income of more than $100,000 are 5 times more likely to undergo an audit.
If your tax record shows extreme fluctuations in your income level, that will again be considered as an audit flag. The IRS takes notice of this because they believe that most people don’t have such large differences in income levels. Usually they feel that you’ve underreported your income at one point or another.
Believe it or not, having too many zeros in your tax return will merit an audit flag. For instance, most expenses aren’t exactly $1,000 or $500. Having this kind of figures would make the IRS think that you have been rounding up too many transaction records and you are definitely up for something. At the very least, this scenario will prompt the system to have your records rechecked by an actual IRS employee.
The items discussed in this article are just some of the many known IRS audit flags and there are still a lot that people should be aware of for them to avoid an audit, and ultimately, an IRS problem.
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