Cases That Will Lead to an IRS Audit

It's important for any taxpayer to know what items in the tax return will result to potential problems with the IRS. The IRS uses computer programs that will process almost all tax returns and check them for some questionable entries when compared to the statistical average. Anything beyond this average will be regarded as a red flag. Depending on the severity of the situation, that particular tax return may be manually reviewed by an IRS employee or the computer will just directly print a notice that will be sent to the concerned taxpayer.

The good news is if you get audit flags, you will not be immediately audited by the IRS. Your odds for an audit, however, are greatly magnified. There are flags that could easily be avoided though. One of these is submitting sloppy and incomplete forms. To avoid this, you might want to ascertain that math computations are done perfectly and information provided are true and correct. Otherwise, the computers will get confused with the entries in your tax return and the involvement of an actual IRS agent will be required in this situation. However, filing tax returns electronically will somehow solve this simple issue as the programs have math and field correctors that can identify erroneous calculations and lacking entries.

Another audit flag pertains to your non-reporting of all your income. The general idea is, all of your earnings must be duly reported to the IRS, otherwise, you will certainly get an audit. Miscellaneous income, dividends and interest are normally forgotten items but these should be reported to the IRS as well. Everyone who sends you a W-2 or 1099 is also sending it to the IRS and that's how the latter knows how much you have earned for a given year.

Claiming that you are earning below the minimum wage will also raise suspicions. Conversely, declaring that you earn substantially more than the minimum will also cause red flags. In fact, less than 5% of all taxpayers are audited yearly. Anyone making over $100,000 are estimated to be about five times more likely to be audited and have an IRS problem.

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

It may sound obscure but a tax return with too many zeros is more likely to catch the attention of the IRS. The IRS believes that whole numbers such as $1000 or $500 are not the actual costs of most expenses. If the IRS sees several instances of these figures, it will presume that you've been rounding up numbers. Because of this, an IRS employee will surely review your tax return.

These are just some of the many known IRS audit flags but there are a great deal more that most people still are not aware of. However, knowing what to be careful about helps you avoid an IRS problem.

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