We see things differently and the Internal Revenue Service perceives businesses with a suspicious look. So many writers are writing books aimed at educating business owners on how to build phony home business despite having a tax shelter.
The IRS are stepping up plans to encourage online tax return preparation by making paper filling history so as to make it easy for business owners to manage their businesses well.
What is Tax Audit?
Tax audit is an examination carried out by a third-party to check a company’s reporting activities and financial records. An audit may be carried out for compliance, disclosure, taxation, legal or several other purposes. Full representation and accuracy of financial activities and claims are checked by the examiner.
Triggers for Tax Audit
Claims for large charitable deductions, omission of reported income, big deductions for home-based business, deductions in round number, math error on returns, income tax return failure are some of the actions that can trigger audit action. It is important that you review your e-filed documents thoroughly before submitting it electronically. You must also monitor closely the alert made available by the majority of online tax preparation services, put in place to detect your mistakes.
Other concerns
At the initial roll-out of e-file, some of the tax preparers express suspicion that online tax preparation may lead to the exposure of taxpayer to the audit verification process which is not applicable to paper files. The math verifying features present in most online tax preparation software help accountants by cross checking the returns before they would be submitted to IRS. This software helps in the protection of the files from the mathematical error that could raise audit concern.
How e-filing increases audit risk
Some Audit professional are of the opinion that online tax preparation will make businesses more susceptible to auditing while others do not see a correlation between online tax preparation and auditing.
It has been postulated by some people that online tax preparation gives a faster route to a tax audit compared to a paper as it is believed that paper may sit longer on the shelf waiting for attention. There is a certain risk inherent in the use of the internet. Despite the convenience of online tax preparation, the potential security risk are still on the ground.
The file on the computer could be easily hacked so you have to secure your computer against theft of information. You should also ensure that any third party involved in your filling should also guarantee the security of your information.
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