The most conscientious taxpayer will probably ask himself if his returns shall be audited by the IRS. It can sound a nightmare especially when you’ll be called to the office of the IRS agent and asked about your finances. More than 60% of taxpayers admitted to the IRS Oversight Board that they fear the audit and will likely be honest with their taxes; or they may need audit protection insurance to cover up.
Essential insurance plans or audit protection services can be purchased from a lawyer or tax preparer the moment you file the returns. They assure their clients to assist them in every way should their finances be audited or are required additional penalties or fees due to the tax preparer’s mistake.
However, audit protection insurance will not protect you from paying fraud or mistakes done by your end. Examples are faking a deductible expense or forgetting the inclusion of 1099.
Several tax preparers include this policy in their usual services, but there are those who include a 5-to-10% cost on your return for audit protection. You can also purchase the service if you’re doing your own taxes. It should entitle you to have a third-party representative to the IRS and provide you a strategy on how to handle the agency.
If your preparer bills you for audit protection insurance, and your tax return is questionable, you can qualify for the extra insurance. Audit protection will just be a waste of time and money if you’re honest with your taxes or have relatively simple expenses. There is even no need for it.
The possibility of getting audited is about one in every 100. Many people can skip their lives from being audited, and you’ll be likely paying for something you don’t need at all. You must have the proper documentation of all your finances, and the correspondences that IRS send you can be done by yourself.
The audit protection insurance will work if you have a very complicated tax return, that’s why there is a need for audits. If you own a large business or have made huge charitable contributions, then the policy is right for you. If this is the case, you can pay your tax preparer for such coverage, and he or she can represent you should there be important matters that the IRS will question your returns.