It is important for businesses and individuals to understand the fundamentals of tax filing from due dates to itemized deductions to avoid being subjected to a tax audit investigation. On the other hand, the best protection is provided by audit insurance for accountants and their clients. The insurance will cover the professional fees that will be generated when responding to an investigation.
Regardless of the income bracket, it is important for businesses and individuals to gather critical and tax-related documents to help make the process of filing easier to navigate. By learning the basic concepts of taxation including how taxes are assessed and collected, you will avoid being a subject of a random audit.
According to Bill Smith, managing director of financial consulting firm CBIZ MHM’s National Tax Office, failing to file the taxes will cost an individual more than failing to pay the taxes. People should not be hesitant if they do not have the money to pay their taxes because they can request for a payment plan. The penalty for failure to file tax returns is equal to 5% of the unpaid tax and may be assessed for 5 months. Meanwhile, penalty for failure to pay the tax is 0.5% of the tax due and is assessed monthly.
Some people do not bother to file their tax returns because they believe that the government owes them. There is no penalty on the failure to file tax returns that are due for a refund. Procrastinating, however, may not allow you to claim the refund altogether. After 3 years, you are no longer entitled to a refund.
Significant changes have been made on the tax code this year from new tax brackets to increases in child tax credit and standard deductions. While personal exemptions have been eliminated, standard deductions for married couples have been increased.
It makes sense for some businesses and individuals to have audit insurance to gain peace of mind during a tax audit. Once investigated by the tax authorities, a considerable amount will be required for the accountant’s or lawyers professional fees. Ask your accountant whether he offers audit insurance for your protection.