Few things in American society are as dreaded as being audited by the Internal Revenue Service (IRS). The tax code is so complex, it is almost a given that if the auditors dig deep enough and look hard enough eventually they will find mistakes and then charge all the relevant penalties (and interest for older errors). The general process is that the IRS computers compare your newest return to your previous returns and the differences are calculated providing a “DIF Score”. If this score is high, indicating a significant change in your filing, it means your return is given additional attention and perhaps audited. Although the DIF Score factors used to determine who gets audited and who does not is kept secret, there are certainly things that will make it more likely that you will be audited. Further, there are specific things you can do to lower your chances of being audited.

First and foremost, use your common sense when filing your annual tax return. If something seems too good to be true, it probably is. So just because you have recently opened a home office does not mean you can suddenly claim your mortgage payments for the year or the total value of your home as a business deduction. People making large and unusual claims on their taxes are automatically highlighted for closer scrutiny, so if you do make a large and unusual deduction or claim for a tax credit on your return, be very sure well in advance that it is legitimate. If you are unsure about a possible deduction or tax credit, read up or consult an expert before you claim it.

Fair or not, there are certain categories of taxpayers that are almost always more likely to face an audit than other people. One of these groups are people that earn more than $100,000 per year because the penalties and interest received from people with high incomes is much more likely to justify the IRS expense in auditing the person. Another group are people that are self-employed because they have much more leeway to hide income or claim illegal deductions by treating personal expenses as business ones. People that earn a lot of their income from cash transactions – like professional gamblers, doctors, and servers – are also more likely to be audited since they have better opportunities to under report their actual earnings. People in any of these groups are more likely to be audited, but people in more than one of these categories at the same time are almost guaranteed to be audited.

Of the 1.39 million audits conducted in 2008, only 310,429 were full field audits. Most audits do not require calling in the person, but instead are handled through correspondence. This means that if you are identified as someone that the IRS intends to scrutinize more closely, if you have all of your documentation on hand to substantiate your claims, you may be able to resolve the issue without going through a full, in person, audit process. Needless to say, you should be able to substantiate any deduction or tax credit claimed, so if you have the supporting documentation readily available and provide it to the IRS when they ask for it through the mail, you can avoid having to deal with the more intense scrutiny stemming from a full audit.

Despite DIF scores and other “red flags” that make audits more likely, there is also a large portion of audit targets that are generated at random, simply to keep everyone alert to the possibility. Since the process is random, there is no possible way to avoid an audit if your number comes up in this way, so no amount of pre-emptive measures are guaranteed to make sure your are not audited.

Like most bureaucratic organizations in the world today whose function involves a large amount of paperwork, the Internal Revenue Service (IRS) is now actively encouraging people to file their annual income tax returns electronically. This makes the annual filing faster and easier, ensures that the return is received on time and means it can be processed sooner, resulting in faster refunds or settled bill amounts for taxpayers. The IRS now offers three main ways to file electronically, though each has its own terms and conditions. Further, there are some types of filing – like claiming the making Home Affordable Tax Credit – that have to be done on paper.

The Free File program offered by the IRS offers two distinct services: Traditional Free File and Free File Fillable Forms. Traditional Free File is a partnership between the IRS and the Free File Alliance LLC that provides free tax preparation and filing for people with an adjusted gross income (AGI) under a specific amount. The qualifying amount for Traditional Free File differs each year, but in 2009 is for people with an AGI under $57,000. Free File Fillable Forms offers a range of the most popular tax forms online that can be filled out and filed electronically. Unlike Traditional Free File, there is no tax preparation assistance provided, but there are also no limits on who can use this feature to file their taxes as long as the relevant forms are available.

The IRS e-File program is actually carried out by tax preparers, non-profit tax assistance organizations, and included in many tax preparation software packages available on the retail market. Almost all the major filing types can be e-filed: personal returns, small business returns, large corporate returns as well as returns for charities, non-profits and people paying excise taxes. The e-file option has been the most successful electronic filing option and is now widespread. Most tax preparers will charge a small fee for e-filing a return, but there are usually free options available such as the Free File program described above, people e-filing with the assistance of non-profits, and those who own their own tax filing software like TurboTax.

The third option is the Electronic Federal Tax Payment System (EFTPS), which is commonly used by companies that choose to make regular payments to the IRS throughout the year. Though it is more popular for companies and entities, individuals are also welcome to use the system and some do. The EFTPS system allows business owners to make regular payments to the IRS weekly, monthly or quarterly and today almost ten million taxpayers are enrolled in the system.  The EFTPS system also allows people to make their regular payments – usually based on the estimated amount owed as determined by Form 1040ES – over the telephone as opposed to online. There are additional features included in the program as well, such as automatic bulk payments for employers sending in payroll taxes regularly.

Filing electronically is much better than manual filing in almost every respect and the IRS is actively encouraging taxpayers to use this option. It is faster and easier for both the IRS processors as well as for the taxpayer and is usually available for free or at a small nominal cost (which can, incidentally, be deducted as a Miscellaneous Expense).

Although many people consider the April 15 deadline for filing their personal tax return as non-negotiable, in reality getting an extension is an easy and painless process that is available to all American taxpayers. Almost anyone is allowed to file a Form 4868, which will grant them a four to six month extension of their tax filing deadline. However, it is important to note that an extension to file does not amount to an extension to pay any taxes due, so if you suspect that you will owe taxes you will be charged interest on any amounts due for the duration of your extension time.

One popular myth surrounding filing for an extension is that in order to do so you have to have a good reason. In reality this is not the case at all. The Form 4868 is a very simple form that asks for nine pieces of information. The only effect that your reason for filing for an extension has is if you tick the box for Line 8. Line 8 asks if you are a U.S. citizen or resident that is currently outside of the United States. If you tick this box, the length of your extension goes down from six months to four months. Otherwise the form does not ask for any further information regarding your reason for filing an extension and the instructions do not place any other reason based restrictions on extensions.

Generally speaking all you have to do is fill out Form 4868 and file it. Although you can file a paper version through the mail, it is usually a better idea to file your 4868 electronically, because then you will get a confirmation that the Internal Revenue Service (IRS) received your filing and, in some cases, a specific confirmation number to verify this. There have been some instances when a Form 4868 has been properly filed and is then misplaced by the IRS, putting the burden of proof on the taxpayer. Therefore it is always a good idea to receive and save acknowledgement of receipt or your confirmation number.

If you suspect that you will owe money and want to avoid having to pay most (or all) of the interest that will accrue during your extension, the Form 4868 also allows you to send in a check for any amount you think is appropriate. The amount sent in will be credited to your tax liability, so interest will only accrue on any amount owed in excess of that covered by your check. Again, you should be careful to document everything and record precisely how much you sent to the IRS just in case there is a processing error. You can also pay forward money that you think you owe via electronic funds transfer, credit card or debit card. The exact instructions in this respect are provided in the instructions for Form 4868.

Filing an extension is a quick and easy process and is available to virtually all filers, even those that have to file paper returns for whatever reason. As a consequence, there really is no justifiable reason for anyone to be late fling their annual tax return. In fact, this may well be why the IRS has a zero tolerance for late filers and automatically charges them with penalties.

When most people think of likely errors on their tax returns, the first thing that comes to mind is mathematical errors; incorrectly calculating or reporting the various amounts asked for on the return. Although it is true that mathematical errors are common, they have been declining as more and more people use some form of tax software to fill out their annual returns. Most modern tax preparation software comes with built in calculators that highlight any errors before the person using it finishes filling out the return, much less prints it off or electronically files it.

Instead, many of the more common errors today relate to incorrect personal information as this is something that no tax preparation software can detect or correct. Essentially, whenever the personal information on a tax return does not match the information on record with the Internal Revenue Service (IRS), the return is immediately rejected and the taxpayer is notified of the problem. When a tax return is rejected, it is not considered filed – even if the erroneous return was filed on time – which means it is a good idea to not wait until the last minute to file, even if the filing is done electronically. One simple typo on the Social Security Number (SSN) is enough to have the entire return rejected and can result in penalties for late filing and other problems.

The IRS has eight specific error codes that relate to incorrect personal information, each of which can result in the return being rejected. The most common problems are: (a) an incorrect SSN for either the filer or any other person claimed on the return (spouse, dependents); (b) the SSN does not match the surname on record with the Social Security Administration (a fairly common problem for women that have recently married and changed their names); (c) the date of birth reported for either the primary filer or any other person listed on the return does not match the date of birth in the IRS records; or (d) one or more people listed in the return – as identified by the SSN – have been reported on another return by another person. Basically any error related to the name, date of birth, and SSN of anyone mentioned on the tax return can result in it being rejected. A common example is people that report their children as dependents and use an informal name for the child that does not match the name recorded with the Social Security Administration. Though perfectly innocent, this mistake will likely result in the return being rejected.

Another common error made by people that file paper returns is simply forgetting to sign and date the paper return. This is not a problem for people filing electronically, but there are a large number of circumstances when the IRS will not accept electronically filed returns and other people just prefer to file on paper. Related to this, if the filer is sending in a check, they sometime forget to sign and/or date the check, which will also result in the return being rejected.

Although filers should obviously ensure that the math is correct, errors related to personal information – names, dates of birth, and SSNs – are more common today and easier to overlook.

As is always the case with issues related to American taxes and the internal Revenue Service (IRS), the assorted opportunities for surviving spouses vary widely and can be extremely complicated. In general, most surviving spouses receive their benefits from the Social Security Administration or, in the case of military spouses, the Department of Veteran’s Affairs. The IRS does not have many tax credits that are specifically designed for the benefit of surviving spouses, though a surviving spouse may be able to claim exemptions and other special dispensations that may be to their benefit. Realistically, a surviving spouse should consult with a tax attorney or counselor to determine whether or not he or she qualifies for any of the special benefits that the IRS has to offer.

Anyone familiar with the American tax system understands and marital status frequently plays an important role in how the individual’s tax liability is calculated, depending on which status the filer chooses to file under. There are basically two different status options that make a big difference: “married filing jointly” and “married filing separately”. In general, if the widow or widower previously filed as “married filing separately”, then they receive few if any benefits from the IRS since – from the position of their tax liability – the spouse’s death does not really change anything. Whereas, if the couple had previously filed as “married filing jointly”, then some of the benefits of this status carry over to the survivor, at least for year in which the spouse died.

While generally speaking the tax benefits to a survivor of a “married filing jointly” relationship only apply to the year in which the spouse died, there is an exception if the survivor has dependents. First, keep in mind that the IRS has very strict definitions of what constitutes a dependent, so you do not have the freedom to simply consider anyone who depends on you as such. Second, the benefits are confined to qualifying widow[er]s and there are strict guidelines for this status. There are basically five requirements to qualify for these tax benefits: (a) your deceased spouse died within the previous couple of years and the survivor has not remarried; (b) the survivor has at least one dependent that meets the IRS definition; (c) the dependent lived in the survivor’s home for the entire tax year; (d) the survivor paid at least half the annual expenses for maintaining the home; and (e) the survivor qualified to file jointly with his/her deceased spouse before the death, regardless of whether of not they actually did so.

Qualifying widow[er]s with dependents receive a number of benefits that may carry on for several years. Otherwise though, the possible benefits that a surviving spouse may qualify for are generally tied to the specific taxes themselves as opposed to the taxpayer’s status as a surviving spouse. For example, a surviving spouse may receive benefits related to the estate tax, to control over various retirement plans and arrangements, and related to dependents and joint property. Therefore, it is generally recommended that surviving spouses consult with a professional to determine the most beneficial way to deal with their survivor status.