Is TurboTax audit defense worth it ? The short answer is that for most customers, TurboTax’s Audit defence (or any other audit defense policy) is not worth it. As someone who utilizes TurboTax every year, I can attest to this. I like the way it looks, how it works, and how easy it is to find CPAs. TurboTax is, of course, more expensive than most other tax preparation services, but the extra cost is well worth it. Not so much paying extra for its Audit Defense function.
The short answer is that it is debatable. In some circumstances, the peace of mind of knowing that tax professionals will be there to assist you if you are audited may be worth it. This is especially true for folks who are concerned about their income reporting accuracy or whether they were a touch too aggressive with their tax deductions.
Let’s take a closer look at what TurboTax Audit Defense has to offer, what it doesn’t, and how likely it is that you’ll need it.
7 Reasons Why TurboTax Audit Defense Isn’t Worth It
Here are 7 reasons why the Audit Defense feature in TurboTax may not be worth the money.
- You are unlikely to be audited by the IRS.
- Taxpayers who use TurboTax are less likely to be audited by the Internal Revenue Service.
- The most expensive component of dealing with an audit is not included in TurboTax’s Audit Defense services.
- Most customers will probably be satisfied with TurboTax’s free Audit Support.
- The Audit Defense services are not available in TurboTax.
- When you consider the extent of services, TurboTax Audit Defense is a costly insurance.
Let’s take a closer look at each of these factors.
You are unlikely to be audited by the IRS.
How likely are you to be audited by the IRS and require TurboTax’s Audit Defense? You might be surprised by the response. On average, a taxpayer’s odds of being audited are 1 in 333. In other words, only 0.3 percent of tax returns are audited by the IRS. Moreover, 74% of audits are conducted through mail. As a result, even if they are audited, most taxpayers never encounter an IRS agent.
The decrease in IRS audits is part of a longer-term trend that began in 2010. The ordinary taxpayer is now 56% less likely to be audited than they were in 2010. Despite the fact that there were a record amount of individual tax returns filed in 2020 (157,195,302), the IRS only audited 509,917 of them.
TurboTax users are less likely to be audited by the Internal Revenue Service.
People who use TurboTax file simpler tax returns, which are less likely to be audited by the Internal Revenue Service. If you own a large company or have a complicated investment portfolio, you should hire an accountant or a tax attorney to assist you with your taxes.
Taxpayers who only file 1099s and W-2s and claim the standard deduction are unlikely to be audited if their income is reported honestly. Even if you are audited, it will most likely be due to a simple math error or some easily rectifiable issue.
However, if you have concerns about the accuracy of your forms or whether the IRS would agree with your deductions, you should consider engaging an enrolled agent, CPA, or tax attorney.
The most expensive component of dealing with an audit is not included in TurboTax’s Audit Defense services.
“Most audit defense packages are similar to the damage insurance available for many retail products. “They are extremely profitable for those who market them, but they provide little benefit,” Dr. Weil explains.
To figure out if Audit Defense is a wise investment, you need to know what it covers and, more crucially, what it doesn’t.
What is included in TurboTax Audit Defense?
The following is TurboTax’s explanation of its services, as stated in its user agreement.
Audit Defense: During the Period of Membership, TaxAudit will represent you through the completion of any income tax audit for the tax return year stated on the membership certificate. The notification of an audit must be received during the membership period. The Audit Defense Plan is likewise bound by the limitations and exclusions set out in the membership certificate and this agreement. Audit Defense also includes the following:
Managing all communications with the IRS and/or the State regarding the audit, including letters and/or phone calls.
Assigning your case to the Audit Representative(s).
Creating a strategy with you and then meeting or communicating with the IRS or the State on your behalf.
Prior to trial in Tax Court, negotiating with the IRS or the State through Appeals and pre-litigation Appeals review.
Without your final agreement and consent, no settlement with the IRS or the State will be made.
If your covered audit resulted in additional tax due, you can seek two hours of collection assistance.
Advice and assistance with sending letters to the IRS are the major services provided by TurboTax Audit Defense. Because comprehending the tax system and communicating with the IRS is no easy task, this is a valuable service.
“TurboTax Audit Defense essentially promises that a trained tax professional will assist a person in communicating with the IRS in the event of an audit,” explains David Reischer, Esq., an attorney and CEO of LegalAdvice.com. The service aids in the preparation of answer letters so that the audit may be communicated with more effectively. TurboTax Audit Defense, on the other hand, isn’t necessary for those who are already organized and prepared for their tax filing deadline.”
Nonetheless, if you are audited and need to meet with a tax professional, TurboTax’s Audit Defense will save you money. However, keep in mind that you are unlikely to be audited, and the services provided by this product are restricted to advise and letter-drafting assistance. Let’s look at what this service doesn’t contain before deciding whether it’s worth it for you.
What TurboTax Audit Defense does not cover is the following.
It’s worth noting that this service has some limits. Here are some of the things that TurboTax’s Audit Defense won’t help you with (as stated in the user agreement):
Limitations of the Audit Defense Plan
TaxAudit is completely dedicated to lawfully preserving our members’ rights and assets in the case of an audit.
The following are the restrictions of our service:
TaxAudit does not offer legal advice or representation in federal or state courts, including Tax Court.
TaxAudit does not provide legal aid in the case of actual or alleged civil or criminal fraud.
Our members’ Federal, State, and Local income tax returns are not prepared or amended by TurboTax’s TaxAudit.
For our members, TaxAudit will not reconcile checkbooks, arrange records, or do record-keeping or bookkeeping.
When we did not contest the Audit, TaxAudit does not provide aid with collection notifications. A collection notice from the IRS or a state is not considered an audit, and your TaxAudit Audit Defense Membership does not cover it.
If you report your Audit late or do not participate by supplying the documents in a timely manner, the auditing agency will issue a Notice of Deficiency (NOD) or the state equivalent, and TaxAudit will not be responsible for the additional work and costs involved. If this happens, TaxAudit will charge the member a late fee to cover the costs.
When it comes to audit protection rules, read the fine print.
It’s worth noting that the audit defense plan excludes the preparation or amendment of tax returns. As a result, it will not assist in the reconciliation of checkbooks or the organization of documents. They will also not assist with any work that is caused by late filing or failure to provide information on time.
“While many of these insurance policies cover the cost of a tax professional analyzing and settling a notice (and some even pay fines and/or interest issued by the IRS), what they don’t cover is the additional tax due because of the unreported items,” Dr. Weil notes. They cover representation before the IRS in the event of an audit, but not preparation time, which might account for the majority of billable time if the taxpayer’s records don’t match and support the information disclosed on the return.”
“There are various limits with the program,” says Paul Donovan, a CPA and attorney for Simplify LLC. There is a time limit in effect. During your membership period, you must get a notice. There are some prerequisites for cooperation. They do not offer legal assistance. You’ll need a lawyer if you have to go to court. They don’t take up the cause of fraud. It does not cover notices of collection. “Additional work” is invoiced individually. If the return isn’t filed, it doesn’t apply.
“Large firms aren’t insured,” Donovan explains. “If you are a partner in a partnership that has received a notice, it may not be covered unless there is a membership on the partnership tax return.” It does not apply to someone who is the subject of a criminal investigation. There’s also a “catchall” reservation of the right to terminate the contract. The folks who are most likely to benefit from this scheme, in my opinion, are also the people who are least likely to get audited.”
Most users will probably be satisfied with TurboTax’s basic Audit Support.
If all you need is a tax professional to call if you receive a letter from the IRS or your state’s revenue department, you won’t have to pay anything more. TurboTax provides free Audit Support Guarantee. This includes audit assistance from a licensed tax professional who will explain your IRS notice and answer any of your audit-related questions. What you receive is as follows:
- An expert tax professional will provide one-on-one audit advice.
- Answers to your audit queries all year round.
- Advice on what to expect during the audit and how to prepare.
TurboTax now offers an Audit Support Guarantee for federal and state returns completed in the following formats as of January 1, 2021:
- TurboTax is a free tax preparation software.
- TurboTax Free Edition is a free version of TurboTax.
- TurboTax Live Basic is a free version of TurboTax.
- TurboTax Deluxe is a software program that allows you to prepare your taxes
- TurboTax Live Deluxe is a deluxe version of TurboTax.
- TurboTax Deluxe TurboTax Deluxe TurboTax Deluxe TurboTax Deluxe TurboTax Deluxe TurboTax
- TurboTax Self-Employed TurboTax Live Self-Employed TurboTax Home & Business TurboTax Self-Employed TurboTax Home & Business TurboTax Home & Business TurboTax Home & Business TurboTax
Audit Defense is a service that TurboTax does not provide
TaxResources, Inc., dba TaxAudit, provides audit defense services for your tax return, according to TurboTax’s user agreement. This isn’t always a negative thing. If you’re contemplating Audit Defense because you trust TurboTax’s reputation or like Intuit’s products, keep in mind that the audit protection plan is provided by a different firm.
When you consider the extent of services, TurboTax Audit Defense is a costly insurance policy.
The Audit Defense feature is included in TurboTax’s MAX package, which costs an extra $60 at the time of publication. Other services include “Full Identity Restoration,” “Identity Theft Monitoring,” and “Priority Care,” among others.
“TurboTax Audit Defense is a terrible value proposition at $60 for a basic service with a minimal service guarantee,” says the author.
“While many of these insurance policies cover the cost of a tax professional analyzing and settling a notice (and some even pay fines and/or interest issued by the IRS), what they don’t cover is the additional tax due because of the unreported items,” Dr. Weil notes. They cover representation before the IRS in the event of an audit, but not preparation time, which might account for the majority of billable time if the taxpayer’s records don’t match and support the information disclosed on the return.”
“There are various limits with the program,” says Paul Donovan, a CPA and attorney for Simplify LLC. There is a time limit in effect. During your membership period, you must get a notice. There are some prerequisites for cooperation. They do not offer legal assistance. You’ll need a lawyer if you have to go to court. They don’t take up the cause of fraud. It does not cover notices of collection. “Additional work” is invoiced individually. If the return isn’t filed, it doesn’t apply.
“Large firms aren’t insured,” Donovan explains. “If you are a partner in a partnership that has received a notice, it may not be covered unless there is a membership on the partnership tax return.” It does not apply to someone who is the subject of a criminal investigation. There’s also a “catchall” reservation of the right to terminate the contract. The folks who are most likely to benefit from this scheme, in my opinion, are also the people who are least likely to get audited.
What is the difference between Audit Support and Audit Defense?
It’s easy to mix up Audit Support Guarantee and Audit Defense because they seem similar. Audit Support is provided with all TurboTax versions at no extra charge, while Audit Defense is an add-on service.
The level of dedicated assistance you will receive is the key difference between these programs.
Notice that TurboTax’s Audit Support gives you one-on-one audit advice from a knowledgeable professional and assists you with audit preparation. Audit Defense, on the other hand, provides complete IRS audit representation. Audit Support, on the other hand, may give much of the assistance and peace of mind that Audit Defense does without the additional cost.
Frequently Asked Questions on Audit Defense Policies
Audit defense services are offered by tax preparation businesses and guarantee to assist you if you are ever audited by the state or the IRS. As previously stated, these services are not always worth the money. Here are some of the most common questions about audit defense policies in general, and TurboTax’s Audit Defense in particular. Other tax preparation services, it should be noted, offer comparable audit protection.
Will TurboTax be able to assist you with an audit?
Yes, TurboTax can assist you with audits. However, whether or not you paid extra for TurboTax’s Audit Defense will affect the level of assistance you receive. Furthermore, the degree of service you will receive from TurboTax may not be what you expect. For a more in-depth look at what this service has to offer, see the section above.
Is TurboTax Audit Defense a reliable tool?
TurboTax Audit Defense isn’t awful at all. It’s a different matter whether it provides good value. Most people would be better served spending their time and money organizing their papers and making sure their tax returns are filed correctly rather than paying for audit protection insurance.
Is it necessary for me to pay for audit protection?
Most likely not. Of course, there is no one-size-fits-all solution, but if you use an online service like TurboTax, your return will most likely be simple. Audits are quite unusual and, in most circumstances, do not necessitate specialist knowledge. You’ll need more aid than an audit defense policy if you lie about your income or overstate your tax deductions. If your financial and tax status is such that you are at risk of being audited or making a mistake that could result in significant changes in your tax liability, you should engage a tax accountant.
What can you do to make sure you’re ready for a tax audit?
The easiest way to prepare for a future audit is to make sure you have the documentation or proof you need to back up the numbers on your tax return.
“A user who acquires the Turbotax Audit Defense should understand that the service cannot provide a defense for the tax filer when one does not exist,” Reischer notes. It is the tax filer’s responsibility to be organized while filing, and no audit defense can acquit a person of culpability for an incorrect tax filing.”
How do you get ready for an audit?
Organize the documentation you’ll need to back up your claims in an audit, or pay an accountant or tax specialist to do it for you.
The following documents are important and should be organized by month and year
- Receipts and bills are two types of receipts.
- Checks have been canceled.
- Documents that are legally binding.
- Agreements on loans.
- Logbooks for business or expenses.
- Paperwork pertaining to travel.
- Expenses for medical treatment
- Documents related to employment and financial statements
