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Before you buy an insurance product like audit protection insurance, it’s important to know what you’re buying. Audit protection doesn’t protect you from being audited. Nobody can prevent you from being audited. The IRS has the right to audit anyone, and its audit process is at least partially random.
Audit protection is an add-on service provided by some tax filing companies. They guarantee that a certified tax professional will help you understand communication from the IRS.
Types of Audits
In general, an audit is an investigation of an existing system, report, or entity. It may be conducted by either an internal or external party, depending on the situation.
Will Audit Protection Actually Help You?
As much as I like to poke fun at bureaucrats, the IRS is ostensibly reasonable to deal with. It sends audit letters using plain English and tax jargon, but the letters spell out exactly what the IRS needs.
In most cases, individuals undergoing an audit need to send personal records. These include records for businesses you own, receipts for rental houses, and various forms that you need to fill out your taxes anyhow. If you have great records, an audit shouldn’t end up being a huge deal. The audit may reveal a “contentious deduction” and the IRS decides you owe more money, but good records will mitigate most of the pain of an audit.
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How Much It Costs?
All of that said, the value of audit protection depends a lot on how much it costs. In general, spending money on bookkeeping software is a much better use of your money than spending money on audit protection.
Should Anyone Consider Audit Protection?
If you’ve got simple taxes like a W-2 job, and a few 1099-INT forms, audit protection isn’t worth anything. On the other hand, people who take advantage of every tax-advantaged account, have multiple businesses, and invest in MLPs will have tons of records. Even if you keep great records, you may need help explaining your unique situation to the IRS.
We are wary of recommending audit protection to most people. I think when most people understand what audit protection is, they won’t opt for it. If you can get audit protection for free (or really inexpensively), you could argue for it.
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Our experienced staff in Divine Group LLC will use all of their knowledge to work alongside you correctly and on time. Contact us today for more information.