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CNN Money has a list of 5 tax items that may red flag your return for audit by the IRS. Keep in mind that the IRS keeps what actually goes into the decision very secret, so this is just a guess. It’s a pretty good guess based upon experience, but it can change at any time.

1. Overkill on Charitable Contributions

Aah, the prototypical “fudge” number on people’s tax returns. These have been abused so long (and now in lots of more ways) that the IRS will look at any return that has a much higher percentage of charitable contributions than other taxpayers in their income bracket.

2. Self-Employed Expenses

Another oldie but goodie. People have been writing off all kinds of items as “business deductions” for so long that taking any sort of S/E expenses (especially if you have a full time job elsewhere) might as well be printed on bright red paper and have flashing lights on it. I would add abuse of the hobby loss rules to this as well.

3. Above Average Deductions

The IRS uses a computer matching program that scores your return against others in your tax bracket in various ways such as deductions, credits, and exclusions. If your score is too high, you’ll get flagged for audit. Does that mean you should tailor your return to score low? No, you should take every deduction and credit you are entitled to. Just make sure that you are entitled to it and that you keep documentation so that it can withstand an audit.

4. Making Six Figures

IRS audit records have shown for years that you are much more likely to get selected for audit if you make $200,000 than if you make $20,000,000. The simple fact is that the more money you make the more likely you are to use a professional that is legally bound to file a correct return. People making low six figures can still file their own returns and may be tempted to stretch deductions (see #1 and #2) to lower their tax bite.

5. Careless Omissions

If you don’t attach a W-2, or worse yet don’t include it income, you’ll be flagged immediately as part of the IRS push to match documents like W-2s and 1099s to tax returns. So, report everything!

Previously, I had blogged about H&R Block’s use of customers tax data to sell them stuff. I suggested that wasn’t such a good idea and may be illegal. Well, it seems like they were just ahead of the curve.

Currently, companies can give your tax return information to affiliates if they bury it in a disclosure that you have to sign. The IRS has decided it just might be a good idea to allow companies to sell your tax return data to unaffiliated companies if they get permission. The IRS says this will empower consumers to use their tax return data how they see fit. I say it’s a scam and many people will have no idea that their tax return data is being marketed to the highest bidder.

It also seems to be a bright shiny beacon to identity thieves. Here! Buy people’s most sensitive data! You don’t even have to fake out ChoicePoint anymore!

Bad, bad, bad idea. I really hope the IRS wises up and quick.

I am participating in the Carnival of Personal Finance this week. Go check out the Investimist post as well as all the other excellent posts. I will likely be posting on several in the upcoming week.

For anyone checking out the Investimist for the first time, welcome and get comfortable. I can be reached by leaving a comment (I will always try to respond). I welcome comments (and even the occasional criticism).

USA Today has an article on how my generation is not saving enough for retirement. While you could truthfully strike “my generation” from the above sentence, it’s particularly an issue because we have time to know and shouldn’t be having this problem.

Nearly 80% cite daily living expenses as a barrier to saving. While I know this can be a legitimate issue, there are ways to cut living expenses to the point where you can save. I, personally, just began putting money into my 401(k) again after buying a house and the birth of my daughter put a crimp in our budget (my wife is a teacher with a pension, so she was automatically saving). But we made every attempt to get back to putting into my 401(k) as fast as possible once my employer began offering a match.

61% cite “lifestyle purchases” as reasons not to save. This would be buying a nicer car, a big freaking tv, the latest iPod, etc… Why is this important? Compounding!

Here’s an example from Choose to Save, a public education program. Suppose you want to save $100,000. If you have 20 years, you can reach your goal by saving $3,272 a year and earning a 4% annual return. Shorten your time frame to 10 years, and you’ll have to save $6,559 a year and earn 8% annually to achieve the same goal.

It gets worse when you have 40 years to save before retirement but put it off until they are 50 and are unable to match the amount they would have earned. About.com has another example of this power.

So, Gen Yers. Save now. The more you save now the earlier you can stop working. There, that should be enough incentive.

I love the advice of the Motley Fool. They are usually spot on when talking up value stocks (though they thankfully abandoned growth stocks after the tech bubble). However, they sometimes forget they are talking to a lay audience.

The advice that they give is impeccable. However, not everyone has the ability, or time, to not only become an expert in one industry but to read through SEC filings. Abandoning Yahoo! Finance or other screeners just isn’t an option for most people. So, what do they suggest? Buy their newsletter! (of course)

Instead, they should be telling you to rely on time-tested ideas like finding stocks with lower P/E ratios than return on capital ratio. Stick to companies you’ve heard of. Do a Google News search for any bad news out there. Look at news stories on Yahoo! or MSN Money to see if anything has come out that would knock the stock down.

Or, conversely, you could invest in mutual funds or ETFs that invest primarily in dividend stocks and let professionals do the work for you. That’s my suggestion and that is what I do.

The WaPo has an article on the median American family from a financial perspective. And it ain’t pretty.

It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can’t manage to pay off a $2,200 credit card balance.

How do financial advisors rate the median family? They would prescribe the typical cut expenses, save more mentality. We keep harping on it, but it really is the only way to build wealth. Less than 50% of Americans have a retirement account. While I don’t think that includes pension accounts (the article doesn’t say), that’s still an astounding number given the shedding of pensions lately.

Case in point. We’ve replaced our furnace already this year. We just got word that our roof and siding will have to be replaced thanks to a freak February hailstorm. Luckily, we have insurance and have an Aon Home Warranty, so we’ll only pay $1,100 of the total $15,000 cost. But how many families have $15,000 for emergencies? We’d use most of our savings to pay the bill but would likely have to take on little debt. How many would be so lucky? Certainly not the median family listed above.

The WaPo has an article on the future of retirement benefits and the discussions now taking place.

One of the ideas floated includes an automatic IRA for employees that don’t have pension benefits through their employers, either in the form of a true pension or even a 401(k) plan. The idea would be modeled on the Federal Employees Thrift Savings Plan and would allow employees to opt out if they do not want to participate. However, employees would initially be enrolled to take advantage of inertia of most employees.

There are several obstacles. If they make it truly automatic, it would work a lot like Social Security and would essentially tax the poor even more. However, it is the poor that need the help the most, which is why individual Social Security accounts are such a bad idea. If they don’t make it truly automatic, many lower income employees would opt out so that they could pay for things like food and rent. Again, these are the exact employees these IRAs are supposed to target.

On the other side, the reason that employers don’t provide 401(k)s are anti-discrimination rules to ensure that highly paid employees are not treated better than everyone else and the costs involved of paying a trustee for the plan. This idea would would require all employers offer automatic IRAs, but would allow a tax credit of $250 to offset start up costs. Also, since the plans are straight IRAs, there would be no regulations on highly compensated employees or contributions to be made.

All this might work, but it would really be better to not add to the confusing number of retirement options. One of the great ideas the GOP has had in the past few years was to combine the various retirement accounts into one option. I would love to see everything combined into a 401(k) account with the 401(k) limits. It would level the playing field and not handicap workers just because they work for an employer that doesn’t offer a 401(k).

Consumers once again spent more than their incomes in January.

Personal incomes rose 0.7% in January, but spending rose 0.9% meaning consumers spent all of their raises and then some in January. That, in and of itself, isn’t entirely bad. However, coupled with the fact that we were already at a negative savings rate, that means consumers were spending more of their savings in January.

This is not sustainable. The fact that it hasn’t happened since the Great Depression should be the first indication of that. People need to save, otherwise they’ll be sorry once their savings are depleted and they just can’t have that plasma screen they NEED RIGHT NOW!

CNNMoney has a good reminder that your abode isn’t the only thing that needs spring cleaning. Your finances could also use a good look-see.

Their five suggestions are:

* Shred paperwork you don’t need. Bank/Credit Card statements after one year, paystubs other than your latest. Titles and CDs as soon as you get rid of the investment.

* Consolidate all your IRAs into one IRA so that you only need to track one set of investments.

* Consolidate savings accounts into one bank. Same reasons as consolidating IRAs.

* Close unnecessary credit cards. Keep any older than five years and one from two of the major issuers (Visa, Mastercard, AmEx, Discover). I would suggest closing any store credit cards you don’t use frequently as they could be fodder for identity theft.

* Close insurance gaps. Review insurance policies and wills to see if any life changes necessitate changes in coverage.

All good ideas that people put off for far too long (like cleaning out the garage). Take one weekend to clean the garage and one weekend to tackle your financial garage. If you need help, certified financial advisors can help. But, as always, make sure they have some sort of certification.

I am participating in the Carnival of Personal Finance this week. Go check out the Investimist post as well as all the other excellent posts. I will likely be posting on several in the upcoming week.

For anyone checking out the Investimist for the first time, welcome and get comfortable. I can be reached by leaving a comment (I will always try to respond). I welcome comments (and even the occasional criticism).