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Are tax returns really the commodity that they are often perceived to be? Is a tax return prepared by the tax service in the mall of the same quality as that prepared by a major CPA firm?

What does it mean to have a “quality” tax return? In fact, can a tax return be prepared in such a way as to reduce income taxes or reduce audit risk?

As someone who has been involved in the tax return preparation process for almost 30 years, let me share some thoughts on this subject.

In all the firms and companies I’ve worked, the basic accuracy of tax return preparation was excellent. There was always a good review process and I don’t believe there were major mistakes on very many returns produced by these firms. I find this also to be the case on returns that I see from clients who are new to ProVision. It’s rare that I find a flagrant error in a return.

But does that mean that these firms all produce the same quality of tax return? The clear answer in my experience is a resounding “NO!” Let me explain.

Accuracy in a tax return simply means that the information provided by the client was reflected on the tax return. It does not mean that the tax return was prepared in the BEST way it could have been prepared. In fact, I RARELY see a tax return from a new client that was prepared the way we would prepare it at ProVision.

Tax Return Preparation Either Always Reduces or Increases Your Audit Risk Let me give you some examples.

Example #1: Where you claim your deductions matters Suppose you have some expenses that could either qualify as investment expenses or business expenses. Either classification would be “deductible” on the tax return. BUT, a business expense is MORE DEDUCTIBLE than an investment expense.

How is that possible? An investment expense is deducted on Schedule A and is classified as a “Miscellaneous Itemized Deduction.” There are several limitations on a miscellaneous itemized deduction. First, you only get to deduct these type of expenses to the extent they exceed 2% of your income. So, if you have $300,000 of income and $7,000 of investment expenses, you only get to deduct $1,000. What’s worse is that if you are in the Alternative Minimum Tax like millions of taxpayers, you don’t get any benefit for your investment expenses.

How does this relate to audit risk? Miscellaneous itemized deductions tend to be more heavily scrutinized by the IRS, so they have a tendency to increase audit risk. In this case, how your tax return is prepared not only impacts how much you pay in tax, but also your audit risk.

Example #2: Tax return preparation matters even when you owe no tax Many taxpayers believe that their audit risk is low because they don’t have any tax liability, so who and how their tax return is prepared doesn’t matter. This is not necessarily true! Here’s why:

Losses reported on Schedule C are commonly scrutinized because of the possibility of hobby losses (turning a personal activity into a “business” but not putting in the effort to turn a profit which makes the activity a non-deductible hobby activity in the eyes of the IRS).

Losses reported on Schedule E for rental real estate are commonly scrutinized to make sure the rental losses are indeed deductible. The rules in this area can be very complicated so the IRS is on high alert to catch errors.

Having no tax liability does not mean you are off the hook when it comes to audits!

Behind Every Secret Remember, behind every one of my secrets is knowledge – the type of knowledge that makes you aware of what creates massive tax savings so you begin to see your daily routine a little differently…like how to reduce your audit risk even while you are reducing your taxes!

Reduce your taxes now!

There is no doubting the difficult financial situation Ireland, and indeed many other countries are suffering at the moment. But it is vital that we do not allow the global recession to discourage us from attempting to restore Ireland’s economy. Economic growth will occur only if we increase the amount of goods and services we produce, and of course Company formation takes courage and a keen mind for business and financial matters, but it is the gutsy individuals who are willing to take the risk that will re-establish our economy.

Daniel Erasmus Is A Leading International Specialist In Tax Risk Management. He Has Assisted Some Of The Largest Multi-nationals In Implemeting Successful Tax Rism Management Strategies.

Tax Risk Management Specialist, Author & Educator.

1. Be PreparedTechnically, every single taxpayer is eligible for a tax audit. While some audits are selected because the taxpayer?s return flagged the system, many are conducted entirely randomly. This means that as a taxpayer you should be prepared for the possibility of an audit at all times. You should make sure to you keep all financial documents, W-2?s, receipts, etc., in one safe place. That way if you are audited, you can easily find everything you will need to verify your income and deductions. Although there is no way to fully avoid being audited, you can follow some of these tips while preparing your next return to try to reduce the odds. 2. Read and Respond to NoticesGenerally, when the IRS notifies you of an audit you must respond within 30 days. If you do not, then you risk having the IRS review and adjust your total tax liability without getting your input. In addition to responding quickly, you will also want to take a thorough look over the notice. It will give you specific information on what is being examined, so that you can prepare for your audit knowing exactly what is being scrutinized. 4. Know your RightsDo not let yourself get intimidated by aggressive IRS agents, as a taxpayer you have a set of rights designed to protect you and your money. You have the right to select where the audit takes place, when it takes place, etc. Do not let an auditor intimidate you in to having an audit at your place of business unless that is where you want it. To learn more about your rights during an audit, check out IRS.gov.