Tax Errors Taxpayers Make In Reporting Taxes to the IRS
It is very important to have knowledge of the top tax errors taxpayers make in order to prevent having issues with the IRS. Let us take a look at some of the errors:
1. Failing to report all of your income:
It’s quite easy to remember to report income made from your place of employment, but it’s significant to remember other sources of taxable income, such as unemployment benefits, investment accounts, and canceled debt.
2. Claiming the wrong deductions:
There are dozens of deductions taxpayers can benefit from to reduce their tax liability. However, claiming deductions that you’re not qualified for, or too many, can result in an IRS tax audit, penalties, fees, and even jail time if it was deliberate or fraudulent.
3. Not filing on time or failing to file:
Not filing on time or failing to file altogether can lead to a failure to file fee. If you’re running behind schedule, you can always file for an extension. However, it’s essential to remember that even though you applied for an extension to file, you still need to pay your taxes by the tax deadline, which is usually April 15.
4. Math errors:
There is a lot of math involved in filling out your individual tax return. This can make it easy to make a careless error, which can result in the IRS reviewing your tax return. Make sure you double-check each number to ensure it is accurate.
5. Incorrect or missing information:
During the process of filling out your federal tax return, make sure you fill in every single box, or else the IRS won’t be able to process your return. Furthermore, make sure all of your information is accurate. This implies writing legibly, not rounding numbers, and keying in the correct information from your 1099 and W-2 forms.
How Does the IRS inform you of an Audit?
Are you nervous that you may have made an error on your individual tax return that will lead to an IRS audit? If so, you may be asking yourself, “how does the IRS inform you of an audit?” The IRS will notify you of an audit through mail. They will never correspond with you through email or phone, so if you receive a phone call or email from the IRS, it can likely be a scam.
If you’re selected for an audit, the IRS will either manage it through mail or an in-person interview where they will review your records. This interview will either be at an IRS office or at your home, business, or accountant’s office.
It’s also important to keep in mind that just because you’re being audited doesn’t mean you’ve done something wrong. Sometimes, an audit is random just to evaluate statistical norms, while at other times it’s because you are in danger. However, of the roughly 1.0 million examinations of tax returns in 2018, nearly 30,000 of them resulted in additional refunds to the taxpayer, amounting to more than $6.0 billion.
Mistakes taxpayers make during the Offer In Compromise process
The Fresh Start Initiative made it very easy for taxpayers to apply for tax relief through programs like an IRS Installment Agreement and the Offer in Compromise program. However, applying for these relief programs can be complex. Let us review some of the common mistakes taxpayers make when requesting an Offer in Compromise:
Accumulating more tax debt:
Even though you’re in the center of applying for tax relief, you want to make sure you stay on top of your current taxes. If the IRS notices you’re adding more to your tax bill, they might reject your offer. Plus, falling behind on your taxes can sink you further into debt with tax penalties, fees, and accrued interest.
Failing to file returns:
In order to get your Offer in Compromise approved, you need to ensure you filed all of your tax returns, even for previous tax years. Filing your taxes is a legal requirement, and if you fail to file your tax return, you’ll have to pay a failure to file fee.
Making mathematical errors:
This goes without saying, but a mathematical error is one of the simplest ways for the IRS to reject your offer. Whether it’s you or a tax professional filling out your Offer in Compromise proposal ensures everything adds up and is in line with your supporting documents.
Leaving blank spaces:
A blank space on Form 656 or Form 433 will lead to an immediate warning signal because the IRS will think you’re hiding information. Make sure every line is filled out completely, and if you’re not certain, get help from a tax professional.
Ignoring all your choices:
An Offer in Compromise is a great tax relief solution. However, it might not be the perfect solution for your scenario. Before applying, make sure you compare your options and look into other tax relief solutions, such as Currently Not Collectible Status, Installment Agreements, Penalty Abatement, and bankruptcy.
If your Offer in Compromise was rejected, don’t lose hope. After your offer was rejected, you have a period of 30 days to appeal the IRS’s findings and negotiate an alternative deal that can still save you money. Make sure all of your proof and supporting documents are organized in a logical fashion to best persuade the IRS.
Wrapping Up on What Triggers an IRS Audit
Receiving a letter in the mail from the IRS is always threatening, especially if it’s a notice for an audit. There are numerous IRS audit triggers, such as claiming too many deductions, typos and math errors, little or high income, and under-reporting income.
To avoid an IRS audit, it’s important you do your due diligence to prepare and file your individual tax return accurately. Tax audit help is usually provided so you don’t have to go through this complicated process alone and also to ensure you navigate these challenging waters with ease and a positive outcome. Hiring a professional tax audit representative is a very essential step to help you handle the paperwork that comes with an IRS tax audit.