How common are tax audits?

[janettebournes]

I have purchased the tax audit protection from turbotax in the past as well as per sj's post

I am fortunate to say I haven't needed their expertise in fighting an audit

I did not purchase the package this year as my income has grown to the point where I got phased out of even itemized deductions and just took the standard deduction (dual w2s for my husband and myself with no other complicating factors)

[Antares]

I pay my CPA about $2500 (in Manhattan) for tax prep and tax-related issues year round. This includes 4 Schedule C's and my college kid's return. It's pricey, but I would NOT rather do it myself. I also have bought the idea that I'm less likely to get audited if she does it, for various reasons.

[jfoxcpacfp]

Vagabond MD wrote:

Craigy wrote:

Sj wrote:

I think turbotax offers some kind of ultimate audit protection with a CPA if you are audited for an extra price (like $80 or something)…

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Always wondered what that entailed.

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Same here. I regularly purchased it when I used TurboTax but had little expectation for a full-on defense. My guess is that it was a cursory evaluation which would lead to a more traditional relationship for the typical cost of the audit. IIRC, the cost was more like $30-50, but perhaps it has changed. I considered it like bringing an umbrella to ward off the rain.

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Only a CPA, attorney, or EA has unlimited representation rights before the IRS. I would be extremely uncomfortable being represented in even a limited capacity by HRB. This is an interesting article promoting representation by a tax attorney. Not necessary in most cases, but when you need one, you shouldn't try to cut corners.

[VagabondMD]

Craigy wrote:

Sj wrote:

I think turbotax offers some kind of ultimate audit protection with a CPA if you are audited for an extra price (like $80 or something)…

Click to expand…

Always wondered what that entailed.

Click to expand...

Same here. I regularly purchased it when I used TurboTax but had little expectation for a full-on defense. My guess is that it was a cursory evaluation which would lead to a more traditional relationship for the typical cost of the audit. IIRC, the cost was more like $30-50, but perhaps it has changed. I considered it like bringing an umbrella to ward off the rain.

[jfoxcpacfp]

socaintexas wrote:

Last year I paid my CPA $347. He hasn’t finished them yet this year. I am a W2 employee with some 1099 work. My husband does horse/cattle stuff so we have a farm exemption. I don’t think they are too complicated but when I told him next year we will have to do the paperwork for a backdoor Roth he developed a blank stare!

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Are you sure you paid $347 to a CPA? That may explain the blank stare. Those prices are more typical of seasonal tax preparers - that rate might even cause HRB to give you a blank stare  

[socaintexas]

Last year I paid my CPA $347. He hasn't finished them yet this year. I am a W2 employee with some 1099 work. My husband does horse/cattle stuff so we have a farm exemption. I don't think they are too complicated but when I told him next year we will have to do the paperwork for a backdoor Roth he developed a blank stare!

[Craigy]

Sj wrote:

I think turbotax offers some kind of ultimate audit protection with a CPA if you are audited for an extra price (like $80 or something)…

Click to expand...

Always wondered what that entailed.

[VagabondMD]

The White Coat Investor wrote:

I wonder how many blog posts I can get out of an audit.

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The over and under is 7.5.

[ENT Doc]

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

 

[The White Coat Investor]

I wonder how many blog posts I can get out of an audit.

[hightower]

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.

[Hatton]

Echo wrote:

Jrouss wrote:

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. 

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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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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.

[Kamban]

Echo wrote:

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.

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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.

[Steve]

Jrouss wrote:

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.

[Hatton]

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.