A conscientious taxpayer may often ask himself the possibility of getting audited when he sends his tax returns to the IRS. It’s actually a nightmare for taxpayers when a bloodthirsty IRS agent will start ripping apart his returns and ask him to pay more. Around 60% of taxpayers told the IRS Oversight Board that they fear for an audit that’s why they honestly pay their taxes. And this of course will need a tax audit insurance for protection.
The tax audit insurance is essentially insurance coverage acquired from a lawyer or the tax preparer on the time of filing the tax returns. This insurance plan assures those who get audited and will need to pay for additional fees or penalties as a result from the mistakes done by a tax preparer. This insurance plan, however, will not protect you from possible fraud or mistakes committed on your end, such as faking a deductible expense or including a 1099.
If the tax preparer asks you for audit protection and you have an honest tax return, you will probably need to miss out such coverage. “Being protected by this insurance plan is only a waste of money if you honestly file your tax returns especially those reported on the W-2. It is considered no longer important,” says Robert Willens, a tax consulting firm president and a taxation professor at Columbia Business School.
If you had been honest with your tax returns, the chances of getting audited is rare, and you can move on with your life without being audited. You don’t have to pay for something that you won’t actually use. Most audits are straightforward when it comes to documentation of a specific item. It’s either you have the documentation or not and you’ll have to handle the letters received from the IRS yourself.
The tax audit insurance services will make sense if you have a complicated tax return which will allow a greater chance to be audited. If for instance you own a business and unusually got a substantial charitable contribution, an audit protection policy may be a wise move. If this is the case, you may want to pay an initial fee with your tax preparer for such services. As they need to stand by their work no matter what happens, they just need to be more diligent with their preparations.