Every year millions of US citizens file their taxes however IRS selects only few of them. But do you know on what basis taxpayers get selected for tax audit? The head of the audit section consider several things to pick the returns for audit. In case, you have inconsistent VAT declarations for tax periods, you are more likely to get picked by the head of the audit section. He/she thoroughly checks the declaration forms submitted by you. Close inspection let them find mathematical and computation errors. Sometimes, few taxpayers try to reduce their tax responsibility by declaring fake tax credits and tax relief options.
Excessive declarations and extreme fluctuations in the payments would surely push you into the pit of tax audit. Therefore, if you are trying to hide your income from IRS, you are actually making things worse for you. There are taxpayers who have not settled their back taxes which highlight their name to get picked for tax audit. The head of the tax audit possess good knowledge of economic activities on national as well as world level. After analytical assessment, they use management reports to consider the economic sectors that need greater attention.
They identify the high risk taxpayers which is the most important step to find taxpayers who are hiding their income or avoiding their taxes. In other words, whole audit process is a risk based assessment process. But high risk areas get identified by general risk trends and audit potentials. The identification is not only oriented towards risks but also towards risks as well as taxpayers that can have decisive impact on accomplishments of the objectives. Systems of IRS highlight red flags if they find anything fishy in the tax returns. If you own home office and claiming unreasonable deductions for it, your return will get a red flag.
Taxpayers operating business from home tend to deduct most of their expenses under business expenditure. IRS has defined personal and business expenditure. In case, you miss out on some of them, you are more likely to be audited. As a taxpayer, you would need to file state as well as federal tax return. In case, state and federal tax return do not match, another red flag will be raised on the tax return. Are you rounding off the figures while calculating the taxes? Are you writing final calculation as $500 instead of $501.25? Yes! You should refrain from this as there are several numbers in tax return that cannot be rounded off. If your earnings are increasing drastically as compared to your previous year return, this will attract the attention of the tax authority towards your return filing.