As a small business owner, you probably have your hands full with managing your company. You don’t need to be worried about tax audit insurance as well.
But if you’re feeling a little nervous about the possibility of being audited by the ATO or state department of revenue (DOS), it might be time to consider taking out an insurance policy to protect yourself from any potential financial consequences. Here’s what we’ll look at in this blog post:
Are you an audit target?
If you are an audit target, it is important to understand the difference between an audit and tax audit insurance. Simply put, a tax audit is a formal examination of your taxes which can result in additional taxes being owed.
A tax audit insurance policy covers any costs associated with a tax audit, such as attorney’s fees or fines that the ATO may levy for late filings or incorrect information submitted on past returns. However, it does not protect you from prosecution if there were criminal acts committed during the preparation of your taxes (such as fraud).
You may also want to consider purchasing business umbrella coverage for additional protection against lawsuits resulting from accidents that occur at work.
What does a review or audit involve?
A tax audit is a review of your personal or business tax return by the Internal Revenue Service (ATO). Your accountants may conduct an internal review before sending your return to the ATO for audit.
If you are audited, an ATO agent will ask questions about specific items on the return and compare these to financial records that support those items. The agent may also request additional information from you or your accountant.
Tax audits can take place because:
- The ATO suspects that your tax return doesn’t correctly report income or expenses;
- You have omitted facts from a past year’s return; or
- You haven’t filed as required by law
How long will the audit take?
- The time it takes to complete an audit varies. Most audits are completed within 18 months, but some have taken as long as 24 months to finish.
- You must respond to the ATO within 30 days of receiving their assessment letter, or you could face penalties and interest charges on the amount assessed by the ATO.
- If you don’t respond in time, the ATO will send out a summons for your records so that they can complete their audit process without having to wait for your response.
What does a tax audit insurance policy cover?
Tax Audit Insurance covers the cost of an ATO (the Australian Taxation Office), tax appeal and litigation. Tax Audit Insurance also covers the cost of a tax lien and levy.
As a business owner, you’re at risk for an ATO (the Australian Taxation Office) audit. It’s important to keep records going back seven years so that you can prove your taxes were filed correctly during an audit (the statute of limitations). However, if you don’t have all those records or they are incomplete or inaccurate, it could lead to some big problems—namely fines from the ATO and penalties for not filing properly in the fATOt place!
It’s important to note that a tax audit insurance policy does not replace the need for regular income tax planning and preparation. You still need to keep good records and be prepared for an audit, but having this added protection on your side can help alleviate some of the stress that comes with being audited. With so many options available, it can be difficult deciding which one is right for you or your business. We hope this information will help you make an informed decision when choosing an insurance policy!