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Tax Returns Likely to Face Audit: Know the Risks

September 16th

Every year the IRS flags certain taxpayers for audit. In some cases it is because the taxpayer has already been flagged for tax fraud, but in many instances they are simply chosen at random. For random audits the IRS uses the Discriminant Function, which is a highly secret method of determining who will face audit in a given year.

However, in other cases, the IRS chooses certain types of returns that will be a particular area of focus. Taxpayers with returns that fall into one of the following categories must accept the fact that they are more likely to face a tax audit. If you qualify in one of these areas, it is a good idea to consult with a qualified tax lawyer in order to ensure that you will have no unpaid taxes or unfiled returns.

1. Returns with Itemized Deductions. Taxpayers who file a Schedule A with their Form 1040 are more likely to face audit than other taxpayers. Additional calculations involved in the filing of an itemized deduction attract more taxpayer errors and fraud.

2. Self-Employed. Those taxpayers who are self-employed are also more likely to face audit than those in traditional employment. This is because more expenses may be claimed by self-employed individuals than by others, including home offices and travel. If you report a net loss for the year be prepared; you are especially vulnerable to examination by the IRS.

3. Small Businesses. All small businesses, even seemingly innocuous ones, are particularly vulnerable to IRS audit. This is because many small business owners do not understand how to properly file their tax returns and are thus more prone to making mistakes. If you own a small business, consider investing in the assistance of a qualified tax attorney to guide you through the process. In the long run, the investment could save you valuable dollars by avoiding penalties and interest on unpaid taxes.


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