The Common Audit Flags

Any taxpayer would want to know what items in the tax return will be regarded as red flags by the IRS. The IRS utilizes computer programs that will process almost all tax returns and check them for some questionable entries when compared to the statistical average. If the system finds anything that is beyond this average, it will flag that item. Depending on the extent of the inconsistency, that particular tax return may be manually reviewed by an IRS agent or the computer will just automatically print a notification that will be sent to the concerned taxpayer.

Audit flags don't mean you are certainly up for an audit. It only means that your chances of getting one are substantially increased. Note though that there are flags that you can effortlessly avoid. Among these is submitting sloppy and incomplete forms. Avoiding potential IRS trouble would necessitate you to do your math computations correctly and to provide information completely. Otherwise, the computers cannot understand the entries in the tax return and an IRS agent will need to review this. Tax returns that are filed electronically are less likely to have this kind of issue as these mistakes are easily detected and corrected by the automatic math checkers imbedded in the electronic system.

Another audit flag centers on your non-reporting of all your income. Basically, if you do not declare all of your income, expect an audit. Miscellaneous income, dividends and interest are normally forgotten items but these should be reported to the IRS as well. Remember that the IRS gets a copy of all your W-2's or 1099's, hence, they know how much exactly you earn in a year.

If you claim that you're making a great deal less than your industry norm, that will also raise a flag in the eyes if the IRS. Conversely, if you claim that you're 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. Anybody making over $100,000 are estimated to be about five times more likely to be audited and have an IRS issue.

You'll also be given an audit flag if your tax record shows extreme fluctuations in your income level in a given year. The IRS will certainly be alerted with large differences in income levels as it implies that sometime within the year, you have under-reported your income.

Believe it or not, having too many zeros in your tax return will merit an audit flag. For example, most transactions are not exactly $1,000 or $500. If you start rounding off a number of investment earnings figures, the IRS will feel that something is up and too many of the amounts are highly unlikely. At the very least, this case will prompt the system to have your records rechecked by an actual IRS employee.

There are still a lot of audit flags out there and the ones discussed above are just the most common ones. Knowing what to be careful about will certainly help you in avoiding an IRS problem.

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Originally posted 2008-10-15 19:31:12. Republished by Blog Post Promoter

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