Watch Related Videos
comments
Every year the details of federal tax rules change, but there are several rules that remain stable, regardless of the details that change with the passing of every tax year. By following these general overall rules, you can probably avoid being flagged for a manual review of your federal tax return, which might result in the dreaded federal tax audit.
Rule #1 – Add Correctly
Although this is a problem that is becoming less and less of an issue as more people use computerized tax return software, there are still many Americans who use old fashioned pen and paper when it comes to completing their annual tax return. If this is the case, then double check you addition before sealing the envelope and dropping the return in the mail. Incorrect addition or subtraction can result in the IRS computer flagging a return to be reviewed by a human processor. And if they believe there is one mistake, then they will be looking for others. So double-check your work, especially if you are completing the forms manually.
Rule #2 – Report All Income
While it can be tempting to shave a bit off the top when it comes to reporting income, remember that the IRS computers that initially process annual federal returns are looking for any anomalies or irregularities. When your employer pays you, they also send reports to the IRS when they file your tax deductions from your paycheck. This information is filed away to be compared with your federal returns.
Additionally, if you work as an independent contractor and earn more than $600 from any one source, they are required to file a 1099 form with the IRS and they send you a copy for your tax returns. When you file your return, this information is compared to what has been reported already to the IRS.
The lesson – do not be tempted to leave out reported income, since it will likely come back to haunt you.
Rule #3 – Avoid Unusually High Deductions
The IRS computers that process annual returns look for unusually high deductions. If they find a return that looks abnormal, then it will be flagged for review by a human IRS tax return processor. If they find that the deductions are either unusually and unexplainably high or that the deduction amount falls outside of allowable limits, then they will also be looking for other reasons for an audit.
Before you take any deductions, make sure you understand what the limits are for that particular deduction and that you are not overstating what your deductions are for that item.
Summary
The Internal Revenue Service processes the majority of federal tax returns with a high speed computer, which speeds up the processing time for annual taxes. However, for returns that are difficult for the computer to read, do not add up or fall outside of the usual norms, they are flagged for review by a human tax return processor, which may result in an audit for the tax payer.
Rule #1 – Add Correctly
Although this is a problem that is becoming less and less of an issue as more people use computerized tax return software, there are still many Americans who use old fashioned pen and paper when it comes to completing their annual tax return. If this is the case, then double check you addition before sealing the envelope and dropping the return in the mail. Incorrect addition or subtraction can result in the IRS computer flagging a return to be reviewed by a human processor. And if they believe there is one mistake, then they will be looking for others. So double-check your work, especially if you are completing the forms manually.
Rule #2 – Report All Income
While it can be tempting to shave a bit off the top when it comes to reporting income, remember that the IRS computers that initially process annual federal returns are looking for any anomalies or irregularities. When your employer pays you, they also send reports to the IRS when they file your tax deductions from your paycheck. This information is filed away to be compared with your federal returns.
Additionally, if you work as an independent contractor and earn more than $600 from any one source, they are required to file a 1099 form with the IRS and they send you a copy for your tax returns. When you file your return, this information is compared to what has been reported already to the IRS.
The lesson – do not be tempted to leave out reported income, since it will likely come back to haunt you.
Rule #3 – Avoid Unusually High Deductions
The IRS computers that process annual returns look for unusually high deductions. If they find a return that looks abnormal, then it will be flagged for review by a human IRS tax return processor. If they find that the deductions are either unusually and unexplainably high or that the deduction amount falls outside of allowable limits, then they will also be looking for other reasons for an audit.
Before you take any deductions, make sure you understand what the limits are for that particular deduction and that you are not overstating what your deductions are for that item.
Summary
The Internal Revenue Service processes the majority of federal tax returns with a high speed computer, which speeds up the processing time for annual taxes. However, for returns that are difficult for the computer to read, do not add up or fall outside of the usual norms, they are flagged for review by a human tax return processor, which may result in an audit for the tax payer.
