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Tax and Tax Information - Tax Audits Advise

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Tax and Tax Information * Tax Audits Advise

Advice on Internal Revenue Service Audits   
Roni Deutch

It is important to keep in mind that the IRS computer system selects the returns that are audited, not human employees.

The computer system selects returns that are likely to yield the most money to the government and then are merely reviewed by an IRS agent. The computer system makes this decision by reviewing returns for “red flag” characteristics. Red flag characteristics are those income, deduction, and credit types that have historically seen the most imprecise calculations and abuse by taxpayers. Below is a list of common red flags their computer systems look for.

Article to continue below----------------------------------------------

No Blowing Smoke: Group Discusses SC Cigarette Tax (AP Via Yahoo! Finance)
Doctors and an anti-smoking group discuss efforts to raise South Carolina's 7-cent-a-pack cigarette tax that is the lowest in the nation.

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None wage sources of income

A taxpayer is more likely to get audited if he or she generates income from any source other than regular employment wages. Persons who file Form 1099 are up to three times more likely to receive an audit then some one who only files Form 1040. A 1997 IRS press release claimed more then three percent of taxpayers filing Form 1099 reporting between $25,000 and $50,000 of income were audited, compared with under one percent of 1040 returns that were audited.

Article to continue below----------------------------------------------

Let Bush Tax Cuts End, Economists Say (Fox News)
NABE economist said Congress should let the Bush tax cuts expire.

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Taking excessive deductions or credits

Although the IRS offers hundreds of possible deductions and credits to help taxpayers lower their income tax liability, taking an excessively large amount will send a very clear red flag to the IRS. But how does a taxpayer know what’s excessive? That’s a tricky question. There is no all-applying rule because the IRS determines the allowable number of deductions for a taxpayer mostly based on their income. For example, if a person making $30,000 per year claims $15,000 in charitable contributions, then this will send a red flag to the IRS.

Improper self-employment deductions

Although there are many tax laws allowing self-employed individuals to lower their liabilities by using home office deductions, taxpayers taking home office deductions are probably the most frequently contested by IRS because they are easy for a taxpayer to bend the truth on. In order to claim a home office deduction a taxpayer’s home office must be the principal place of business, meaning they perform most of their work in the home office. Also, the space must be used exclusively for running the business and not for personal use as well. Otherwise the space can’t be considered a home office and may not be deducted. The rules for home offices are very specific, so please be sure to read the IRS’s rules and regulations if your considering claiming a home office deduction.

Excessive business losses

Losses from a business can also be another red flag for the IRS. If an individual starts their own businesses for the purpose of generating excessive tax deductions, the IRS will catch on quickly. Businesses must be profitable in at least three of the past five years in order to be considered a legitimate business for tax purposes. Otherwise the IRS will realize the business is functioning as a tax shelter.

Noticeable inconsistencies from previous years

If there are big inconsistencies between your previous tax returns and your current return then you could be sending a red flag to the IRS. The most common examples are name changes (i.e. your name or the name of one of your dependents), claiming new deductions and credits, or a significant change in income. For example, if a taxpayer earned $75,000 one year, then only $15,000 the next, the IRS is going to wonder what happened.

Different information in local and federal returns

If there are differences in the income you reported to your state treasury and to the IRS then the IRS will investigate as to why the information reported is inconsistent. Not only do federal and state authorities receive records of all sources of income and financial information for every taxpayer, but the IRS does as well. If they notice any errors that point to misrepresentation of income then you can expect to receive a letter informing you of an audit.

Suspiciously low income

If your reported income seems suspiciously low for your given life style, then the IRS will see this inconsistency and may request an audit. Remember that the IRS has access to all your financial records and will notice if you are making a $5,000 monthly mortgage payment but only receiving $2,000 a month in reported wages. They are going to know you must be receiving income from another source and will investigate.

Sloppy or incomplete tax returns

If your tax returns are incomplete or sloppily prepared then this might also get the attention of the IRS. If there are blanks where there should be numbers or if most of the numbers you claim are round numbers (like $2,500 or $10,000) then this will also send up a red flag to the IRS.
There is no way to guarantee a taxpayer won’t be audited. However, if a taxpayer files an accurate tax return and avoid the IRS’s red flags their chances of being selected for an audit are much lower. Even if they are selected, having a clean and accurate tax return will help make the audit less cumbersome and intrusive.<p>
Visit the <a href="http://www.rdtc.com/blog">Roni Deutch Tax Center Tax Help Blog</a> for more information.

For over sixteen years, Roni Deutch has been recognized as an experienced tax attorney and founder of the nation's largest law firm dedicated to resolving IRS back taxes. Roni Deutch has always put the needs of her individual clients first, and by so doing has helped thousands of Americans find an end to their IRS tax nightmares. This experience, dedication and commitment to helping American taxpayers can now be found at the Roni Deutch Tax Center.

What Other Authors say about Taxes

Utilizing Tax Tips by Carl LaFresnaye

Tax tips can be found from a variety of different sources, but individuals must be careful to determine whether those sources are professional and legitimate or if they are from average people who are...

Social Security Tax by Hans Hasselfors

You should be able to find several indispensable facts about social security tax in the following paragraphs. If there's at least one fact you didn't know before, imagine the difference it might make....

Panama: The Benefits of this Jurisdiction for your IBC by Richard Price

Why use the jurisdiction of Panama for your IBC? Does 'no income tax', 'no capital gains tax' and 'no estate tax' capture your attention? If so, read on…Panama constitution provides the highest levels...

Income Tax Software - The Best Ones On The Market by Mike Singh

There are several income tax software programs available on the market to help you complete your yearly taxes. These programs offer tax tips, checklists, and error checking messages to ensure that required...

Small Business Tax Credit - Americans with Disabilities Act by Richard A. Chapo

Many small businesses complain when confronted with the expense of complying with the Americans with Disabilities Act. Most do not realize that there are a number of tax incentives available to offset...

Delinquent Taxes - What Happens if I Don't Pay the IRS? by Neil Lemons

Depending on how much time has past, an individual will see hundreds; even of thousands of dollars owed in back taxes that were not originally assessed when first receiving a letter from IRS. Similar to...

Tax preparation: Should You File Or Pay A Professional? by Kenneth L Myers

You do not have to be a professional to do your taxes however if you have a complicated income structure or are just not quite sure, there are services to help you prepare taxes for yourself or your business....

Find the Right Service to Prepare Your Taxes by Don Kransteuber

It is possible to save money on your tax preparation fees by doing some advance preparation of your own. Make sure that you organize your paperwork and receipts to save time and ensure nothing is missed....


Who are the CPA Moms?      Your Tax Professional Forever!!!!

“CPA Moms - Tax Moms - EA Moms" are trade names given to Accounting and Tax Professionals who chose to work in an “relaxed” environment. Some "Moms" work from home, other work from personal offices. Not all are Moms, there are some Dads. We call them Mr. Tax Moms. CPA Dads or Enrolled Agents Dads.
Each Mom is independent. Once a client starts working with a Mom, the client will keep the same “Mom” year after year regardless of where the client moves or relocates. Being in a “relaxed” environment has many advantages. Lower overhead, faster response time, more availability, etc.
To be a member a CPA Mom, Tax Moms, or an Erolled Moms the Tax Professional must ALWAYS be in good standing with their state licensing agency, experienced, and must demonstrate a high level of ethics, professionalism and proficiency.
Tax Net Inc, the parent company for all CPA Moms, Tax Moms and Enrolled Moms, developed the marketing and on-line systems to help qualified Tax Professionals who "choose" work from their “relaxed” environment and offer better service at a lower price to the consumer.
Since the “Moms” do taxes and accounting of all complexities, there is always a Mom available for every level of work. Since each Mom has a private 800 number, you are just a phone call away, regardless of where you live.
For reliability and dependability of Tax Net, Inc, the parent company of the “Moms” organization click on the Better Business Bureau (BBB) icon.

To Join CPA Moms

Click for accredited member's reliablility report.

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Index of Articles about Taxes

What Other Authors say about Taxes

Utilizing Tax Tips by Carl LaFresnaye

Tax tips can be found from a variety of different sources, but individuals must be careful to determine whether those sources are professional and legitimate or if they are from average people who are...

Social Security Tax by Hans Hasselfors

You should be able to find several indispensable facts about social security tax in the following paragraphs. If there's at least one fact you didn't know before, imagine the difference it might make....

Panama: The Benefits of this Jurisdiction for your IBC by Richard Price

Why use the jurisdiction of Panama for your IBC? Does 'no income tax', 'no capital gains tax' and 'no estate tax' capture your attention? If so, read on…Panama constitution provides the highest levels...

Income Tax Software - The Best Ones On The Market by Mike Singh

There are several income tax software programs available on the market to help you complete your yearly taxes. These programs offer tax tips, checklists, and error checking messages to ensure that required...

Small Business Tax Credit - Americans with Disabilities Act by Richard A. Chapo

Many small businesses complain when confronted with the expense of complying with the Americans with Disabilities Act. Most do not realize that there are a number of tax incentives available to offset...

Delinquent Taxes - What Happens if I Don't Pay the IRS? by Neil Lemons

Depending on how much time has past, an individual will see hundreds; even of thousands of dollars owed in back taxes that were not originally assessed when first receiving a letter from IRS. Similar to...

Tax preparation: Should You File Or Pay A Professional? by Kenneth L Myers

You do not have to be a professional to do your taxes however if you have a complicated income structure or are just not quite sure, there are services to help you prepare taxes for yourself or your business....

Find the Right Service to Prepare Your Taxes by Don Kransteuber

It is possible to save money on your tax preparation fees by doing some advance preparation of your own. Make sure that you organize your paperwork and receipts to save time and ensure nothing is missed....