COMPUTERS CONDUCT AUDIT OF SORTS ON EACH OF US

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SATURDAY, February 29, 1992                   TAG: 9202290068
SECTION: BUSINESS                    PAGE: A-6   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium
COMPUTERS CONDUCT AUDIT OF SORTS ON EACH OF US
Although an individual taxpayer has less than one chance in 100 of being subjected to a formal audit by the Internal Revenue Service, most of us undergo a computer audit of sorts every year.
The IRS receives from employers, banks and other payers almost a billion notices of income paid. These little forms W-2 (for wages) and 1099 (for interest, dividends etc.) go into IRS computers, which match them against tax returns.
If Fifth National Bank informs the IRS it paid you $50 interest last year and your tax return does not show that, there is close to a 100 percent chance you will get a bill for additional taxes, plus interest and penalties.
In other words, it is getting more difficult by the year to avoid tax on legal income.
Although your employer was supposed to supply a W-2 record of your wages by Jan. 31, you are obligated to file and pay even if you didn't receive it. If you don't have it, call the IRS toll-free telephone number for your area.
Some other ideas to consider as you prepare your 1991 return:

If you can't complete your return by the midnight April 15 deadline, file a Form 4868 for an automatic four-month extension. However, you still have to estimate how much you owe and include a check for the total along with the extension request.

Don't ignore the filing deadline just because you can't pay in full. Pay what you can and the IRS will bill you for the rest.

Some deductions, known as adjustments, may be claimed even without itemizing but it usually requires filing a long Form 1040. For example, if you paid a bank penalty for early withdrawal of a savings certificate, that penalty may be written off. So, too, may alimony payments you made in 1991; you must report the name and Social Security number of the recipient.
Jury-duty fees that you turned over to your employer in return for continuing your regular pay may be subtracted from income.
These and other adjustments, including deductible contributions to Individual Retirement Accounts and expenses of producing rental income, are entered on Page 1 of Form 1040. An IRA contribution also may be claimed on the short Form 1040A.

If you have a bone to pick with the federal government, think twice before using your tax return to make your point. The law imposes a $500 penalty for filing a frivolous return. Should you carry your fight into Tax Court, you could be liable for another penalty of up to $25,000.

If, after filing your return, you find a mistake, file an amended return on Form 1040X.

Working for two or more employers last year may have caused you to overpay Social Security and Medicare taxes. Only the first $53,400 of wages was subject to the 6.2 percent Social Security tax but up to $125,000 was subject to the 1.45 percent Medicare tax. These used to be shown on your paycheck as one deduction. The maximum taxes: Social Security $3,310.80, Medicare $1,940.40.
Any excess may be subtracted from taxes owed on 1040 Line 58 or 1040A Line 28d.

Unemployment compensation is fully taxable, as is sick pay. Worker's compensation for job-related injuries is tax-free.

Keep your tax records for at least three years. Any record relevant to ownership of property, especially your home, should be retained permanently.

Sometimes some expenses of using part of your home for business may be deducted but limitations are tight. As a starting point, the home must be your principal place of business for any of your trades or a place where customers deal with you in the normal course of business. See IRS Publication 587.

You and your spouse both must sign the return if you are filing jointly.

If the IRS sends a bigger refund than you are entitled to, don't rush out and spend it until you call the IRS for an explanation. If the check is smaller than you expected, the IRS may have caught a mistake of yours or made one of its own.

But, don't hold the refund check too long. It expires in 12 months.

by Bhavesh Jinadra by CNB