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How common are tax audits?

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  • How common are tax audits?

    I previously used Turbo Tax, but have used a CPA the last 4 years.  I am thinking of going back to doing my own taxes as they are relatively straightforward.  One argument that the CPAs make is that they reduce audits compared to self-prepared tax returns and of course they can help in case of audit. I've heard variable numbers, such as 5% of high income returns are audited each year.  But I actually don't know any doctors who have been audited (perhaps they keep it quiet).

    So my question is: How many of you high earners have been audited?

    I understand it is a possibility, I just don't have a feel for how much of a possibility.  I'm not scared of an audit as my taxes are all on the up and up, but I do fear the hassle factor of going through it alone.

     

  • #2
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    • #3




      I previously used Turbo Tax, but have used a CPA the last 4 years.  I am thinking of going back to doing my own taxes as they are relatively straightforward.  One argument that the CPAs make is that they reduce audits compared to self-prepared tax returns and of course they can help in case of audit. I’ve heard variable numbers, such as 5% of high income returns are audited each year.  But I actually don’t know any doctors who have been audited (perhaps they keep it quiet).

      So my question is: How many of you high earners have been audited?

      I understand it is a possibility, I just don’t have a feel for how much of a possibility.  I’m not scared of an audit as my taxes are all on the up and up, but I do fear the hassle factor of going through it alone.
      Click to expand...


      They are very rare. More common the more money you make. More common if you self-prepare a return that you shouldn't be self-preparing (schedule C, E, lot of employee business expenses, home office, s-corporation, complicated transactions and so forth). If you and your wife are just W2 employees, probably no reason to pay to have your return prepared.

      Then again, if you are just W2 employees who do backdoor Roths every year and accidentally report it as income (as I have seen), a CPA who knows what they are doing is justified. Or if it takes you 3 or 4 hours that you could be using to do something you enjoy. It's partly perspective.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        I've been audited once, after a fashion.  The IRS didn't believe my charitable deduction that year was real, and so they just disallowed the deduction and claimed I owed $10,000 in back taxes.  While I had the necessary documentation to prove my case, I was glad to have my CPA holding my hand through the process.  He did all the real work with the IRS, all I had to do was send him the necessary documents he didn't already have (the IRS wanted copies of canceled checks and credit card statements, not just the donation letters provided by the charities.)

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        • #5
          My return has so many k-1, 1099 and some houses we own as rental that it would be impossible for me to do a return that will not trigger an audit. And I am fairly intelligent person.

          Besides, my CPA does my private practice office return and has all the paperwork from that. I give him the rest of the details for my personal return. If I am audited then I will just let him handle it and submit the documents he asks for.

          Once in the past the state audited me for some sales tax on items we did not pay ( and we had the state law stating that we did not have to pay sales on certain items that we administered to patients). I pointed him to the necessary law and he met the auditor in his office (who was a buddy and former private practice CPA turned IRS auditor). I did not have to take time off from my office or do anything. A month later I got a clean bill of health from the state department of revenue. After that I never even entertained the thoughts of doing my own taxes.

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          • #6
            At one time, I did my own taxes. (Schedule C, Schedule H, 1099s, K-1's, wife's one time self-employment, etc.) A few years ago, I started buying state tax credits, and there was no way for me to (then) use TurboTax to file on my own. I started using a CPA and am happy that I have done so. Perhaps when I retire, I have more time, and my financial situation is (hopefully) less complex, I will go back to doing taxes myself.

            I really enjoyed playing with variables on the software to see how they affected taxes to be paid. I understood my tax situation much better when I processed the return myself.

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            • #7
              Like Kamban, we have a CPA who does my husband's office taxes and payroll so it is easy to just let her do our personal as well.  It frees my time to be sure I am getting all our deductions and tax credits done.  We have done well with 529's and the Small Business Healthcare Tax Credit.  The IRS every few years wants more info to document these than what is required when our 1040 is filed.  I just take the letter to the CPA and forget about it. I anticipate the same will happen with my dual tIRA rollover to a Solo 401 and simultaneous Roth conversion this year.  Worth every penny we pay them to do our personal taxes to have them deal with the occasional IRS audit letters.  They do not charge us extra when these letters pop up.

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              • #8
                I believe the actual number is 4%

                I have never been audited and I hire a CPA to do the taxes.  To me it is well worth the money to not have the headache of doing it myself, and if I do get audited then I have someone that can deal with it.  The few thousand dollars that it costs for the CPA is well worth it to track and keep everything in order and figure out the office and personal taxes as well as the multiple K-1s.  Could I do it myself, yes; do I really want to NO.

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                • #9
                  I have been audited by my states unemployment tax dept. My accountant handled it.  I had to pay them $25 and start paying fill in nurses on a w2 instead of a 1099.  I would of freaked out without the accountant.

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                  • #10


                    The few thousand dollars that it costs for the CPA is well worth it to track and keep everything in order and figure out the office and personal taxes as well as the multiple K-1s.
                    Click to expand...


                    So how do people pay their CPAs and how much does it cost to have your taxes done?  Do most people pay by the hour, or a flat fee?

                    My taxes are simple, just a single W2, a few 1099-Int, and my deductions which involves my mortgage, state taxes, and half dozen letters from charitable agencies.  My current taxes are done by a CPA at a bank, but the fee is part of a larger advisory retainer fee that I am going to totally get away from.  I'm just trying to gauge what is appropriate cost to have my taxes done alone.  The time it takes to organize and make copies of all my documents is longer than the time it used to take me to put it all in Turbo Tax.

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                    • #11




                      So how do people pay their CPAs and how much does it cost to have your taxes done? Do most people pay by the hour, or a flat fee? My taxes are simple, just a single W2, a few 1099-Int, and my deductions which involves my mortgage, state taxes, and half dozen letters from charitable agencies. My current taxes are done by a CPA at a bank, but the fee is part of a larger advisory retainer fee that I am going to totally get away from.
                      Click to expand...


                      Yours is fairly simple and probably can be done by yourself.

                      I am not exactly sure hwo my CPA calculates the fee charged but I suspect it is the hours worked and the complexity. I have office tax returns, 4 quarterly filings ( I calculate the q 2 weekly payroll myself and pay it online), W2 and 1099 prep and end of year reconciliation, office property LLC filing, investment LLC filing, personal tax filing, kid's tax filing ( due to UGMA), 3 other states tax filing due to k-1 showing commercial properties located in those states. The total fee is between $5-6 K, for now.

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                      • #12





                        The few thousand dollars that it costs for the CPA is well worth it to track and keep everything in order and figure out the office and personal taxes as well as the multiple K-1s. 
                        Click to expand…


                        So how do people pay their CPAs and how much does it cost to have your taxes done?  Do most people pay by the hour, or a flat fee?

                        My taxes are simple, just a single W2, a few 1099-Int, and my deductions which involves my mortgage, state taxes, and half dozen letters from charitable agencies.  My current taxes are done by a CPA at a bank, but the fee is part of a larger advisory retainer fee that I am going to totally get away from.  I’m just trying to gauge what is appropriate cost to have my taxes done alone.  The time it takes to organize and make copies of all my documents is longer than the time it used to take me to put it all in Turbo Tax.
                        Click to expand...


                        Echo your taxes sound simple so you could do them yourself.  I like Kamban have a more complicated tax return.  I have a schedule c business which complicates things.  This is the first year with no k1.  I have one accountant for my small business and another one for my personal taxes.  My fees are around 8-10k.  I think they charge by the hour and per form. When I close my business I think I will try to turbotax myself.

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                        • #13
                          I've always done turbotax myself.  Prior to this year our taxes were always very simple...just a few W-2s and some charitable donations to write off.  This year our taxes got a bit more complex because we started hosting an airbnb room and had to report the income and write off expenses for it.  I was still able to figure it out, but that combined with the charitable donations make me worried that I'm more likely to get audited now.  I keep records of course, but it would still be a headache.  Next year I might consider hiring someone to help at least once just to make sure that I'm doing everything correctly.  Then, I'll probably just go back to doing it myself again.

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                          • #14
                            I wonder how many blog posts I can get out of an audit.
                            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                            • #15
                              As to how common they are based on income:

                              https://www.fool.com/retirement/2017/02/06/here-are-the-odds-of-an-irs-audit.aspx

                               

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