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With a government that is looking for money wherever they can find it, accusations of federal tax fraud are the last thing most Americans want when it comes to their annual tax returns.
Audits
It is estimated that approximately one percent of the general population is audited every year and a generally straightforward annual tax return rarely is flagged for auditing. In general, most returns are actually processed by Internal Revenue Service computers, which explains how returns are now processed relatively quickly and how returns filed electronically are usually processed within a matter of days.
If a return is flagged by the computer system for auditing, it is then manually reviewed by a human IRS tax return processor who then determines if an audit is justified for clarification or glaring errors or fraudulent tax deductions.
Red Flags
There are a number of things that may trigger a red flag by the IRS computer, which looks for anomalies or deductions that are outside of the statistical norms for a particular income bracket or from past history of a tax payer. Here are a few of the standard red flag items on annual tax returns that may result in an audit being triggered:
Messy or Incomplete Return – The more clearly you write if you are filing a manual return, the easier it is for the IRS computer to read the return. Naturally, if you are missing information or your math is incorrect, then the computer is going to kick it back for a manual review by a human processor who might be able to make sense of it.
Unexplained Changes in Income – Generally income remains steady for most individuals. Large unexplained increases or reductions in income from one year to the next may result in a red flag. Likewise, unexplained variations in income that are outside the norm of a particular job category are also flagged as being suspicious by the computer system.
Inconsistent Returns – Despite what many people believe, the Internal Revenue Service and states often compare reported income information from annual tax returns. If you are inconsistent in the information filed with your federal return and your state return, then it may very well be picked up as an error for further investigation.
Unrealistic Deductions – The use of deductions, particularly charitable deductions, comes under consistent scrutiny. Areas of high deduction abuse, like deductions for work use of a vehicle or medical expenses are also looked at carefully, particularly if the numbers reported are inflated or are higher than the standard allowable amounts.
High Income Profession – Like it or not, there are certain professional that the IRS is more suspicious of than others. These include entertainers, doctors, lawyers, real estate agents and the self employed. Also, although only one percent of the general population is randomly audited every year, individuals making over $100,000 annually often come under greater scrutiny than those who earn less than this amount.
Summary
Nobody wants to be audited by the Internal Revenue Service. By keeping your annual income tax return simple, straightforward and within normal limits, you can avoid most of the red flag items that will trigger the IRS computer to mark it for further review by a human IRS tax processor.
Audits
It is estimated that approximately one percent of the general population is audited every year and a generally straightforward annual tax return rarely is flagged for auditing. In general, most returns are actually processed by Internal Revenue Service computers, which explains how returns are now processed relatively quickly and how returns filed electronically are usually processed within a matter of days.
If a return is flagged by the computer system for auditing, it is then manually reviewed by a human IRS tax return processor who then determines if an audit is justified for clarification or glaring errors or fraudulent tax deductions.
Red Flags
There are a number of things that may trigger a red flag by the IRS computer, which looks for anomalies or deductions that are outside of the statistical norms for a particular income bracket or from past history of a tax payer. Here are a few of the standard red flag items on annual tax returns that may result in an audit being triggered:
Messy or Incomplete Return – The more clearly you write if you are filing a manual return, the easier it is for the IRS computer to read the return. Naturally, if you are missing information or your math is incorrect, then the computer is going to kick it back for a manual review by a human processor who might be able to make sense of it.
Unexplained Changes in Income – Generally income remains steady for most individuals. Large unexplained increases or reductions in income from one year to the next may result in a red flag. Likewise, unexplained variations in income that are outside the norm of a particular job category are also flagged as being suspicious by the computer system.
Inconsistent Returns – Despite what many people believe, the Internal Revenue Service and states often compare reported income information from annual tax returns. If you are inconsistent in the information filed with your federal return and your state return, then it may very well be picked up as an error for further investigation.
Unrealistic Deductions – The use of deductions, particularly charitable deductions, comes under consistent scrutiny. Areas of high deduction abuse, like deductions for work use of a vehicle or medical expenses are also looked at carefully, particularly if the numbers reported are inflated or are higher than the standard allowable amounts.
High Income Profession – Like it or not, there are certain professional that the IRS is more suspicious of than others. These include entertainers, doctors, lawyers, real estate agents and the self employed. Also, although only one percent of the general population is randomly audited every year, individuals making over $100,000 annually often come under greater scrutiny than those who earn less than this amount.
Summary
Nobody wants to be audited by the Internal Revenue Service. By keeping your annual income tax return simple, straightforward and within normal limits, you can avoid most of the red flag items that will trigger the IRS computer to mark it for further review by a human IRS tax processor.
