Want to know how IRS picks people for auditing? The process is simple: majority of the returns are processed via IRS computers, and if something out of the ordinary is detected, the agency will flag the accounts. The IRS then reviews them manually and sends in an audit notice if it senses something suspicious. Below are four things that could put you on the IRS spotlight:
1. Sloppy returns – Wrong calculations and inaccurate information breeds suspicion. If the IRS computer can’t read the details in your return, naturally, a human would have to check to find the error. Make sure to review your return properly before submission.
2. Irregular income – IRS computers normally expect consistency. If it notices drastic fluctuations in your income, it may assume that there is unreported or under-reported income somewhere. Ensure that every income source is recorded.
3. Excessive charitable contributions – Charity is admirable, but too much of it might prompt scrutiny. If the average person within your income bracket earns $2,000 but you’re giving away more, you are likely to get audited. Keep your receipts.
4. Incorrect claiming of dependents – Counting your dependents is pretty easy. But what if you divorce, re-marry, or adopt? Your deductions entitlements will have to be changed. Make sure that your records are updated accordingly.
Many people face tax issues after an audit. If you’re notified, hire a tax lawyer right away to ensure that your rights are protected and that you don’t overpay in case the IRS imposes penalties.