3 Ways Tax Software Solutions Help You Avoid Audits
The thought of an audit by the Internal Revenue Service is enough to stop people cold in their tracks. While fewer than one percent of people go through this process every year, you deal with a lot of stress and possible penalties if it happens to you. Tax software solutions help you send your tax return through without any unwanted attention from the IRS.
1. They Minimize Human Errors
The paper tax forms are a mess, even if you know what you’re doing. You reference information from multiple documents and run the risk of copying the wrong number or miscalculating the math. Tax software streamlines this process and handles the manual work for you. You don’t have to go back and forth to find the right figure or read through pages of instructions to learn how to calculate a deduction. You simply fill out the information once, and the application does the rest. By working from a single data set, you don’t run into situations where an error at the beginning of the form causes major problems with your tax payment at the end.
2. They Update to the Latest Tax Code
The U.S. tax code changes every year, so you have to read through the forms and instructions annually to see whether anything is new for your financial situation. You might miss a new law that would increase your rate or take an old deduction that’s no longer valid for your filing status.
No one wants to decipher complicated terminology or sort through a long list of conditions to figure out whether you should alter the way you’re filling out your return. Tax software that’s hosted online, often called cloud-based software, gets updated by the company selling it. The new additions to the tax code get added into the program. You really never need to know the specifics because the application checks that behind the scenes.
Did you download tax software on your computer and install it? Some programs automatically update themselves so that you’re always up-to-date. If you turned that feature off or your app doesn’t offer it, go to the developer’s website. They may release a new version annually or have a manual update file available.
3. They Flag Potential Audit Issues
The IRS looks for certain characteristics on the tax returns it chooses to review. Its main focus is on people with more than $10 million in income, but there are a few other red flags that can cause a review if you aren’t a multi-millionaire. Deductions that seem out of line with your tax history or the average for a category are common problems. For example, if you work at home and claim a portion of your rent and utilities as business expenses, you may need to document the exact percentages that go to business use. Small business owners who always report losses are another common target, since a lack of revenue can lead the IRS to suspect tax evasion.
You don’t have to track every potential audit red flag with tax software. If your return falls into risky territory, it gives you a notification so you can confirm the accuracy of the entry. Some software companies also offer audit protection and help you defend yourself against an audit.
You shouldn’t live in fear of getting your taxes audited. Reduce your chances of errors, red flags, and misunderstood rules by utilizing tax software to prepare your return.