Does Tax Preparation Software Save You From an Audit?

The odds of your tax return being audited are roughly 3 in 1,000, or 0.3%. But a Lexington Law survey found that 25% of us are afraid of an IRS audit. Some people will try anything, from paying top dollar for an accountant's help filing their returns to buying tax software with all the bells and whistles. And yet, we're not precisely sure if either expense is worth the money. Here, we take a look at what tax preparation software can (and can't) do for taxpayers.

The reality

Even the best tax preparation software can't prevent taxpayers from making silly mistakes, like transposing numbers or forgetting to electronically sign a return. Either simple mistake will earn a letter from the IRS. Sure, tax prep software will double check math, but if the wrong numbers are entered, the program can only work with what it's given.

There were more than 141 million tax returns filed last year. Of those, a tiny portion will be audited. If you're worried about the IRS coming after you for forgetting to add your child's Social Security number or misspelling your spouse's middle name, you're worried about nothing. While there's a good chance the revenue service will send a polite letter asking you to correct the error, the IRS processes far too many returns to get worked up about honest mistakes.

Even if you end up owing money, there's no reason to panic. If you don't have enough money in your bank account to pay the IRS, it is surprisingly easy to work with. The IRS routinely sets up payment plans to help taxpayers get their tax bill paid.

What triggers an IRS audit is cheating -- deliberately lying to avoid taxes or receive a larger refund. And that's where tax preparation software may come in handy. Some software allows you to run a review before you file a return. The review looks for potential red flags -- the type that triggers audits in the first place.

What else you can do

If you're concerned that you might be audited, there are options that could help you sleep easier at night. They include:

• Don't file too early: No matter how anxious you are to get your taxes over with, wait until you have all the documentation you need to begin your return.
• Check and double check your return: This includes checking your math, ensuring you haven't made any spelling mistakes, and combing through your return line by line to make sure you haven't left anything blank.
• Report all income: No one wants to pay more in taxes than they have to. However, honestly reporting all sources of income makes it less likely you'll be audited.
• Take realistic deductions: For example, if you itemize charitable contributions, don't claim the tuba you donated was worth five times its actual value. Also avoid claiming excessive mileage or cash deductions.
• Have evidence: Make sure you have the paperwork necessary to back up any claimed losses.

While tax preparation software can't catch every potential mistake, some of the biggest names in prep software do offer audit support in the event you receive the dreaded letter. Worry-free audit support is typically available for an additional fee, but it may be a small price to pay for peace of mind. Here's a sample of four tax prep software companies that offer audit support:

• H&R Block Worry-Free Audit Support
• TurboTax Audit Defense
• TaxSlayer Audit Maintenance Pro
• TaxACT ProtectionPlus Audit Defense

Whether you're looking forward to receiving a refund that you can sock away in your savings account or simply want to get taxes over with for the year, tax software can make the process easier. However, it's not a catch-all. You'll still need to do your part by ensuring your tax return is filled out as completely and accurately as possible.