Last year, less than 1 percent of all tax returns were audited by the Internal Revenue Service, which means a taxpayer's chance of being selected for an IRS audit was only 1 in 154. But even though it is unlikely a person will be audited, there are some red flags that can increase the odds, which you can easily avoid.
Many tax returns are subject to a computer selection process that works by assigning a number value to certain key items on your return. If the total number score exceeds the minimum set by the IRS, the computer will single out the return. The return will then be assigned to an IRS agent to determine its audit-worthiness.
"Don't despair if you get a letter from the IRS requesting additional information from your tax return," says Denise Sposato, public relations manager for the U.S. Tax division at H&R Block. "It does not equal guilt--you are merely being asked to substantiate your return."
Consumers by and large should not worry about audits, says Wade Lagrone, director of production for Yahoo!'s Yahoo! Finance. "The chances of you making a math error are twenty times the chances that you will be audited," he says. "The main problem is getting the return right. People should be more worried about a penalty."
When a possible error is found, a letter is generated by the IRS and sent to the taxpayer explaining what was uncovered, the proposed correction, a detail of any new tax owed, interest and penalties, and how and when to respond. The majority of IRS contacts are correspondence and do not require an office visit.
There are many different resources that are worth checking out that can help you fill out your return properly. The Ernst & Young Tax Guide 2004 covers all the new tax law changes and how they might affect you, as well as many tax-saving tips.
Another good resource is Yahoo!'s Yahoo! Finance Tax Center, which provides all the tools and resources you need to complete and file your 2003 tax returns via the Internet (in a partnership with TurboTax). New to the site this year are special segments devoted specifically to tax education and IRA education, as well as a new interface.
H&R Block offers an online service with a variety of products and services, including a library of tax tips, a report tailored to the client's tax and financial situation and a comprehensive do-it-yourself service that provides users with the option of a professionally signed return. The new Signature Edition online product provides audit assistance and the option of a professional review and signature, making the taxpayer eligible for the same guarantees as H&R Block office clients.
Likewise, Jackson Hewitt Tax Service, a division of Cendant, has a tax resource center on its website that gives detailed explanations of such things as 2003 tax law changes and information about future tax law changes.
All illustrations done by Sean Greathead for Forbes.com.