IRS auditors are trained to spot the inconsistencies and mistakes in your tax returns and even the savviest of accountants may find it difficult to get away by cheating the IRS. Sometime you create red flags in your tax returns without intending to do so nor are you deliberately trying to cheat the IRS but you need to understand that any such anomalies may invite an IS audit and probe into all your accounts which in turn may lead to serious IRS trouble.
Before we talk about these red flags, let's talk about how your tax returns are assessed, over the years with the advancement in technology, computers have replaced bored workers handling monotonous jobs. Unfortunately, computers don't tire of doing the same work and can easily spot your mistakes; the simple fact is that they will pick out anything that is out of the ordinary. To do this your tax returns for a particular year are compared with statistical average as a whole and if the difference between the two is too large, it would indicate a red flag. Now once a particular mistake has been spotted the IRS will want to delve further and look at other tax records and may call for an audit. Once the computer has flagged a tax record it is then sent to an IRS officer who manually checks the details depending on the discrepancy in taxes. In some instances you may be spared an d notice printed out by the IRS computer will e directly dispatched to you.
You have to understand that a couple of these red flags will increase the possibility of an IRS audit. Fortunately the IRS offers help on how to avoid these tax goof ups. One of the primary reasons for these red flags are sloppily filed and often incomplete returns. Ensure that you tax calculations are perfect and the information provided is accurate to avoid issues. If you use an electronic system to file your taxes you will be able to successfully reduce the chances of such errors. If miscalculations appear in your tax records, they will be sent to an IRS employee and will manually review the error.
Hiding information and income from the IRS is another mistake that can have disastrous consequences; also you need to understand that it's not going to help. The IRS has its network spread across the country so everybody who gives you W-2 also sends a copy of it to the IRS. So as you can see it is not difficult to the IRS to know exactly how much money you have made. Trying to outsmart the tax man by concealing information is a sure shot way to invite an audit and once this happens you may not b able to help yourself.
Another thing that is bound to show up as a red flag is a sudden increase or decrease in the income. Almost 5% of all tax payers have to go through an audit because they report a bigger or smaller than normal income. If you make more than $100,000 per year, your chances of getting an IRS audit are increased greatly.
You will also have problems with the IRS if you have significant fluctuations in your income. The IRS believes that most people do not normally have a conspicuous difference in the amount of money that they earn from year to year and o if you report such an occurrence which entails a large difference in the amount of money earned in a particular year from the previous year you may raise some shackles at the IRS. Now the IRS is bound to think that you may have concealed some income from them.
Too may transactions with a lot of zeros an also make the taxman suspicious, if all your transactions read $500, $1000 and more, the IRS may feel that you are rounding up a lot of transactions and may thing about subjecting you to an audit.
In case of an IRS audit, you may want to seek advice from a qualified tax attorney in your city or town. There are several experienced tax attorneys in Dallas who can help you resolve IRS issues.
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