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IRS Audit Triggers: Six Red Flags

Audit letter from IRS
Cassandra Hubbart, DailyFinance
By Joy Taylor

Ever wonder why some tax returns are scrutinized by the Internal Revenue Service while most are ignored? The IRS audits only slightly more than 1 percent of all individual tax returns annually. The agency doesn't have enough personnel and resources to examine each and every tax return filed during a year. And its resources are shrinking ... the number of enforcement staff dropped nearly 6 percent last year, partly due to budget cuts. So the odds are pretty low that your return will be picked for review. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.

Here are six red flags that could increase your chances of drawing some unwanted attention:

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Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

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if we had a small national sales tax that everyone pays...instead of the 73,000 pages of current tax code, we wouldn't need the IRS and all the tax games that people play.

March 19 2013 at 10:49 AM Report abuse +1 rate up rate down Reply
1 reply to scottee's comment

but what about the states that have been and still ARE doing fine without any sales tax ? this is why it won't float.....and be realistic ONCE THEY START their taxes you know it always increases-

March 28 2013 at 11:16 AM Report abuse rate up rate down Reply