Tax season is a marathon, not a sprint. With the average person spending upwards of nine hours preparing their return, the opportunity for errors is vast. From overlooking minor interest reports to making arithmetic errors, the complexities of tax filing are fraught with potential pitfalls.
Addressing these errors proactively, through filing a superseded return electronically, can mitigate penalties and undue stress. However, should the Internal Revenue Service (IRS) spot discrepancies first, the road to resolution becomes significantly more arduous, potentially leading to costly and time-consuming audits.
Experts like Beth Logan, an enrolled agent in Cheltenham, Pa., advocate for a methodical approach. By comparing the current year's filing against the previous one, taxpayers can catch omissions and inconsistencies. Yet, even with the most diligent preparation, the IRS's vast backlog—exacerbated by the pandemic—means processing amendments and correspondence can stretch over months.
Despite the challenges, several strategies can bolster your tax return against scrutiny. Firstly, gather all necessary documentation, including W2s and various 1099 forms. This is crucial for accurately reporting all sources of income, including those easily overlooked like bank interest or gig economy earnings.
Paperless records and recent relocations further complicate this process, making it essential to retrieve documents from previous addresses or online accounts. Remember, the IRS already possesses this information, and discrepancies will invariably lead to a CP2000 notice, adjusting your owed amount and possibly imposing penalties.
Taking inflated deductions stands out as a red flag for IRS inquiries. The line between valid and excessive deductions is nebulous, with the IRS comparing your claims against those of similar taxpayers. To stand firm against potential audits, ensuring every deduction is fully substantiated is paramount.
In cases where the IRS initiates a correspondence audit, focusing on specific discrepancies, the taxpayer's ability to substantiate their claims becomes their defense. For the more daunting prospect of an in-person audit, tangible evidence of claims, such as a home office, must be readily available.
Catching and correcting errors before the IRS does—through an amended return—places taxpayers in a more favorable position, potentially reducing the total owed. This proactive step, coupled with the simultaneous amendment of state returns, showcases a strategy of accountability and diligence.
Tax filing, while daunting, can be navigated successfully with thorough preparation, accurate documentation, and a proactive stance on amendments. By adhering to these principles, taxpayers can achieve a more secure and less stressful tax season.
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