Who doesn’t dread opening a letter from the IRS? If you know it’s not a refund check, it probably means an AUDIT! Even if you’re the most honest taxpayer in the country, you don’t want to be in a disagreement with the IRS.
And the IRS is getting tougher. In 2007, the number of individual returns that were audited increased by 7 percent to 1,384,563 — the largest number since 1998.
Audits of individuals with incomes over $200,000 reached 113,105 last year — up 29 percent from the previous year. Similarly, audits of people who reported more than $100,000 in income increased nearly 14 percent.
That’s what makes the latest announcement from TurboTax so appealing. This year the popular software program (prices start at $44.95) has a new feature called the “Audit Risk Meter” that is designed to help you lessen the chance of your return being chosen for this extra scrutiny.
Of course, the IRS doesn’t announce the key items that it uses to choose a tax return for an audit. But using the information from the many tax professionals who create their software, TurboTax has identified many deductions and other common reasons that trigger an IRS audit.
The TurboTax program flags items — or combinations of deductions — on your return that might likely provoke an audit. It gives an explanation of why this is such a hot button, and advises you to consider alternatives or to keep backup data to justify the deduction. The audit risk meter shows whether you’re in the red zone and more likely to be audited, or in the green so you can heave a sigh of relief, sign your return and mail it or file electronically.
You probably use tax software because you don’t want to pay a professional to do your return. But that creates a potential problem: Who do you turn to when that ominous IRS letter arrives?
TurboTax deals with that issue, too, with a downloadable feature called Audit Support Center, which you’ll store on your computer, just in case, as you prepare your tax return. It’s specifically designed to take the panic out of responding to that dreaded summons.
The Audit Support Center recognizes that when you open the IRS letter, your mind goes into shock. So on the first page you see a picture of the four different IRS sample letters you might receive, representing the four basic types of audits, ranging from a simple adjustment notice to a request for an office or field audit.
Then as you click on the form that represents the document you’re holding in your shaky hand, you’ll be guided to the appropriate response. It even gives you templates for letters, showing you what personal information to insert, and where to mail your response.
(If you’re truly phobic, TurboTax also offers an additional service called Audit Defense. For $40 an enrolled agent professional will deal with the audit on your behalf, and represent you at an audit so you never personally have to talk to the IRS.)
The odds of getting audited are still pretty long. The IRS says only about 1 percent of all returns get audited. But the best defense is a good offense. That’s what this year’s TurboTax provides. And that’s The Savage Truth.
Terry Savage is a registered investment adviser. Check out Terry’s answers to reader questions at suntimes.com, and click on Business. Distributed by Creators Syndicate.