Tax audit defense services can help you if the IRS audits your tax return. Although you may feel more secure with a protection plan, only a small percentage of taxpayers are audited each year. In other words, it may give you peace of mind, but you may not need it.
Fear of being audited?
Your chances of being audited are low, but you may have a tax professional do your taxes each year in the belief that they’ll back you up if your return does get audited. Fees for audit defense can be hard to predict. Here are some things you need to know about audit defense services.
What is tax audit defense?
Tax audit defense services promise to support you in tax return audits from the IRS or your state. These services are offered by tax-preparation professionals, including online tax-preparation services and tax-software producers. The level of support they provide depends on the company.
Many of these programs offer to send an agent in person to deal with the tax notice or audit saying, “if you’re receiving an audit in person, we’ll attend” without charging hourly rates. That said, many audits are exchanges of paperwork through the mail.
Most audits begin with a letter from the IRS questioning items on your tax filings. This can happen up to three years after you’ve filed a tax return. Keep complete records for your bank accounts through the fourth tax filing.
How does audit protection work?
Audit protection features may vary depending on your provider, but the following features are what is often in the plan, including:
- Respond to audit notices for you
- Provide access to and support from tax professionals and audit representatives
- Defend your federal/state tax return in audit hearings
- Help you resolve tax debt or identity theft
- Pay for any penalties or fees if you are being audited based on a mistake on your return
Keep in mind
Audit defense is different from audit representation. Audit representation involves hiring a professional to present you once you have been notified by the IRS or state tax authorities that you are being audited and have received a notice from the IRS or audit letter. Audit protection plans are usually purchased before you know you are being audited, not after.
These worry free audit protection plans often come with an expiration date and only cover returns up to a few years from the date the return is due. A tax audit may include returns outside of this window, although they generally include returns filed within a three-year period.
How likely is an audit?
Audit defense protection is simply insurance for a tax return. The odds of an audit are extremely low. In fact, in 2018, the IRS audited 0.5% of millions of tax returns it handled. The odds of getting audited in 2018 were 1 in 200.
Certain groups are more likely to be audited than others. In 2017, those making $10 million or more were more likely to be audited, but these people only make up 0.01% of all returns filed.
How will an audit affect me?
In the event of an audit, you will need to invest a lot of time into resolving any issues. The average audit takes less than a year to complete, but depending on the type of issue and its complexity, the time an audit takes can vary greatly.
It is important to note that if you are audited, chances are, the outcome will not be in your favor. Most audits do not result in additional refunds to taxpayers, but instead increase the amount of money you owe.
Do I need audit defense?
Your chances of facing an income tax audit are small, but audit defense can provide you with a sound mind.
Having a professional file for you already comes with a cost to you, so paying for audit protection may seem ridiculous. Some places do have an automatic enrollment into these plans, but many require you to pay additional fees.
Although you many fear being audited, the odds of you facing this are relatively low. If you decide audit defense is right for you, you must enroll before the audit occurs in order to use it. Be sure to remember the protections these services offer; Audit protection can be helpful, but often comes at a cost. These protections are not mandatory and may not be necessary for you.
