Saturday, July 7, 2012

Does E-File increase Your Irs Audit Risk? The Truth Revealed

###Does E-File increase Your Irs Audit Risk? The Truth Revealed### Advertisements

We often hear from taxpayers that e-filing a return is a bad idea as you are feeding the Irs with a silver spoon all your tax data, and makes it extremely easy for the department to audit your return. The logic is simple and clear, when you e-file your tax return, you submit your revenue tax facts to the Irs using their software and allowing them to speedily analyze your return for statistics, averages, deviations from Irs guidelines (i.e. For example high donation expenses with less than median income) thus making it much easier for the Irs to audit your return first.

Irs Form 1040A

If you withhold that approach, you prefer mailing your hard copy tax return to the Irs requiring them to open the return, key in all the data and only then analyze the return, searching for irregular items. Reporting your income, deductions and credits to the Irs and the state is mandatory by law, but the law does not "force" you to make it easy for the Irs to audit you.

But is that certainly the case? is e-filing your return certainly means you are more likely to be audited? Taxpayers opposing the e-file "haters" believe that the way you use to file your return does not impact the audit selection process as this process is done after the data is entered regardless of the way it was submitted (e-file or mailed in). E-file supporters think that the Irs chooses returns for audit or exam based on prognosis of your income, deductions and credits as they appear on your return, thus "making it easy" for the Irs to process a return does not increase the audit risk. Taking it further, some claim that e-filing certainly reduces your audit risk, since the e-filing process minimizes errors in filing. Using the e-file system, taxpayer goes straight through the check and balances of the software before submitting the return, while mailing hard copy does not go straight through the same process. The Irs says e-filed returns have 1% errors versus 20% errors in non-efiled returns. Makes sense? Maybe.

The Irs does not release audit statistics that pour light on the issue at hand. We do know though that the Irs aggressively pushes the e-file schedule and tries to reach 2014 with 80% of the returns filed electronically. It is clear that e-file is in your future. The quiz, is, either you should adopt the e-file recipe today or wait until it becomes mandatory.

The Irs "induces" taxpayers to use the e-file theory with incentives such as fast reimbursement (10 days with direct deposit), no-preparation-fee for taxpayers who meet unavoidable criteria and lastly more accuracy which leads to fewer penalties for incorrect reporting. Lowest line, you will have to file your return electronically sometimes in the future. If you have simple returns and you use forms 1040A or 1040Ez you are more likely to start e-filing sooner than later as audit does not certainly concerns you with your certainly simple tax filing. The more involved your return is, the more you will be "late adopter" of the e-file system, hoping that you are less exposed to Irs audit by submitting your return via hard copy and not online.

Does E-File increase Your Irs Audit Risk? The Truth Revealed


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