Audit protection is a service that most tax preparation companies advertise as an upsell to help you if you receive a notice from the IRS.
These services can include responding to IRS letters, representing you when you speak with the IRS, or even compensating you if the tax preparation company makes a mistake.
I hate dealing with bureaucrats. The thought of spending time in line at the DMV is so disgusting that I tried to pay someone to wait in line (the person didn’t show up, so I eventually had to go).
If the DMV is causing me this much pain, you can imagine how bad I will feel when I get audited by the IRS. I know this is an exaggeration, but proofreading feels like dying from 1,000 pieces of paper. Which brings me to the gist of this post. Should You Get Audit Protection for Your Taxes – This is a significant upsell for most major tax software products out there.
I personally put my extra money into it Bookkeeping software. I think this is the best use of the dollar.
However, the peace of mind factor may ultimately prompt you to purchase audit protection. In this case, I recommend being as smart as possible. Or use H&R Block for the most protection at the lowest cost.
Should you (or I) pay for audit protection for your taxes? You might be surprised that in most cases, I think the answer is no.
What is audit protection?
Before you buy an insurance product like audit protection insurance, it’s important to know what you’re buying. Audit protection does not protect you from an audit.
No one can stop you from checking. IRS It has the right to audit anyone’s accounts, and its auditing process is at least partly random.
Purchasing audit protection does not protect you from an audit. In this sense, it’s a bit like identity theft insurance. Identity theft insurance doesn’t prevent you from having your identity stolen, but it can make the cleanup process a little easier.
Audit protection is an additional service offered by some tax filing companies. They ensure that a certified tax professional will help you understand communication from the IRS.
They will also help you draft response letters, so that you can handle the audit process efficiently. Some audit protection packages will compensate you if there is an error on your taxes resulting from tax preparation. If you lie or don’t provide information, audit protection won’t help you.
Will audit protection actually help?
As much as I like to make fun of bureaucrats, the IRS is superficially reasonable to deal with. He sends audit letters using plain English and tax jargon, but the letters say exactly what the IRS needs. Here’s an example of a CP05 letter.
In most cases, individuals being audited need to submit personal records. This includes records of businesses you own, receipts for rented homes, and various forms you need to fill out on your taxes anyway.
If you have great records, an audit at the end doesn’t have to be a huge deal. An audit may uncover a “controversial deduction” and the IRS decide you owe more money, but good records will ease most of the pain of the audit.
Unfortunately, online tax filing services can’t help you create good records from scratch. You (or your accountant) need to keep records throughout the year.
Having an expert draft your letters certainly has some value, but not much. Great records will help you much more than audit protection will.
In general, it is a much better use of your money to spend money on bookkeeping software than to spend money on audit protection.
What is the cost of audit protection?
However, the value of audit protection depends a lot on its cost. People who buy H&R Block software (Not apply online) Get free personal audit support.
This guarantee is the main reason why people who pay H&R Block (i.e. freelancers, landlords, investors, etc.) want to purchase the software instead of placing an order online.
If you have a basic submission position, H&R Block’s free audit support shouldn’t be a compelling reason to pay more. H&R Block online filers cannot get in-person audit support, but you can get help via email or phone.
in TurboTaxyou have to pay at least $39.99 to upgrade to “Audit Defense” which is the audit software. To me, this is a high price to pay for a minimal service guarantee.
FreeTaxUSA and Taxhock He offered Audit Defense for $19.99, which seems to me like a reasonable price to pay for the service if you have complex taxes.
Should anyone consider audit protection?
If you have as simple a tax job as a W-2, and a few 1099-INT forms, audit protection isn’t worth anything. On the other hand, people who take advantage of each tax-advantaged account, own multiple businesses, and invest in MLPs will have a lot of records.
Even if you keep great records, you may need help explaining your unique situation to the IRS.
I’m wary of recommending audit protection to most people. I think when most people understand what audit protection is, they won’t choose it. If you can get audit protection for free (or really cheap), you can claim it.
Personally, I put my extra money into bookkeeping software. I think this is the best use of the dollar. However, the peace of mind factor may ultimately prompt you to purchase audit protection. In this case, I recommend being as smart as possible. is used FreeTaxUSA Or H&R Block for the most protection at the lowest cost.
Have you ever paid for audit protection when filing taxes?
