Is the mere thought of Internal Revenue Service scrutiny enough to give you nightmares? For many Americans, it is. In a recent survey of more than 2,500 taxpayers, TaxAudit, the nation’s largest audit defense service, found that 47 percent feel anxious when they receive correspondence from the IRS. And while 65 percent are confident that their tax returns are error-free, 29 percent still worry the IRS will audit them.
RewardExpert spoke with TaxAudit’s Chief Customer Advocacy Officer, Dave Du Val, about the organization’s services and what you can do to reduce the chance of an audit of your 2017 federal or state tax return.
Assisting More than 33,000 Taxpayers Each Year
Headquartered in Folsom, California, TaxAudit resolves more than 33,000 audits annually, defending taxpayers from the moment they receive an IRS notice through to the best possible resolution. Du Val said the company’s customers run the gamut from single W-2 filers with low income to millionaire business owners.
“Just because you ride in a helicopter once or twice a year does not mean you should start flying the helicopter,” Du Val said. “The same goes with representing yourself in an audit.”
He stressed that even a simple request for information from the IRS can easily become a complicated audit situation. He also noted that an audit of a single year can be expanded to multiple years once it’s started.
While TaxAudit is the exclusive provider of TurboTax® audit defense, any U.S. taxpayer can take advantage of the company’s services, which include pre-paid audit defense coverage, tax notice evaluation, and audit representation services.
Peace of Mind for Less than $50
You can purchase TaxAudit’s pre-paid audit defense coverage for $49.99 per year. Should the IRS choose to audit you, TaxAudit’s team of tax experts—including CPAs, EAs, and attorneys who are nationally recognized authorities on ever-changing tax law—will handle all communications with the IRS or state tax authority. This includes scheduling and attending all audit appointments on your behalf.
While business entities with gross receipts exceeding $5 million are not eligible for pre-paid audit defense, most taxpayers will qualify. TaxAudit offers memberships covering the family of Form 1040s, Form 1120 for corporations, Form 1120S for s-corporations, Form 1065 for partnerships, and Form 1041 for fiduciaries.
If you don’t have pre-paid audit defense coverage from TaxAudit, you can still enlist the company’s help. For a fee of $75, they will evaluate any tax notice you receive and suggest an approach for audit or notice resolution. They’ll also provide you with an estimated cost for audit representation services. Basic representation generally runs from $275 for simple cases to $2,500 or more for complicated audits.
Steps to Avoid Triggering an Audit
While some IRS audits are random, most are triggered by mathematical errors or red flags such as a large number of miscellaneous deductions or charitable contributions. To reduce the chance of your 2017 return winding up on the IRS’s radar, Du Val suggested taking the following steps.
- Proofread your return carefully.Double-check that all of your numbers are accurate before you file, said Du Val. “If you look at your return and you have a million-dollar refund coming, but last year you owed $100 and nothing has generally changed, you may want to review your return entries because there’s like to be a mistake.”
- Report all income, even cash and services received.If you have numerous sources of income—you’re a freelancer with multiple clients, perhaps—Du Val said comparing your entries to last year’s return to make sure haven’t missed any can be helpful.
- If you have a business, report gross income, not net.Gross income is the amount your business earned before the deduction of qualifying expenses.
- Avoid business expenses that are “out of whack” with your income unless you can prove them.Du Val said the IRS is always on the lookout for both unreported income and high expenses.
- Never estimate expenses.Du Val said you should not estimate any expenses even if you’re rounding up. The IRS (and state taxing authorities) want actual numbers, not estimates.
- Make sure you know the rules regarding dependents. Don’t claim dependents also claimed by someone else. And don’t report your child’s earned income on your own tax return.