IRS gearing up for big increase.
Position | Tax Audits |
The Internal Revenue Service plans to conduct about 1,000,000 audits this year, up 37% from 2001. The agency says it will target roughly 200,000 fliers earning over $100,000--nearly double that of four years ago.
Even if you are not that wealthy, the increasing number of self-employed individuals also may be part of the government's expanding tax dragnet.
There are three types of audits: Correspondence audits occur when the IRS sends a letter asking for clarification on relatively simple items. It usually is handled and completed through the mail. Office audits are conducted on the IRS's turf. You meet with an examiner who wants to see documentation intended to answer specific questions. It is wise not to volunteer any other information beyond what is asked. Field audits, meanwhile, are the stuff of TV cop shows: The IRS comes to your home and starts nosing around to see why that Jaguar is sitting in the driveway of someone who reported $28,000 in income last year. These tend to be pretty serious.
The government looks for particular signs and signals that may put you in the audit pile. The following measures, provided by the Financial Planning Association, Denver, Colo., will not guarantee you will avoid an audit, but they are key issues that the IRS focuses on when deciding which returns to target:
Goofing the basics. This is an obvious point, but remember to sign the return, add the Social Security number, and double-check the math. Fill out every applicable line on the return or, better yet, get a tax specialists to do it since professionally prepared returns usually are easier to read and understand. Remember, sloppy returns tend to draw scrutiny.
Rounding can be a problem. Exact numbers suggest precision. It always is best to use the correct number you need for an item instead of rounding up--or even down.
Note sales of stocks and bonds carefully. Anytime you sell stocks or bonds, the IRS and the taxpayer receive a 1099 noting the sale price. Your tax professional can show you the proper way to account for these sales on your return. Keep in mind that items such as...
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