Tax Return Mistakes? Here’s How to Fix It
April 25, 2018
Tax Day is finally over, but that doesn’t mean you’re completely off the hook from any tax return mistakes. Even if you swore your tax return was perfect, it can be easy to overlook details. And sometimes, those missed details can cause problems if not fixed immediately.
The IRS will make corrections for you – sometimes
The IRS will correct minor errors like miscalculations or unwarranted credits, then will inform you of the changes via a notice. For example, if you made a mistake in taking the Earned Income Credit (EIC), then the IRS will correct the error and alert you if you owe money. Many taxpayers make mistakes on calculating their Premium Health Tax Credit, which covers health insurance premiums based on income. The IRS will adjust the amount, but you’ll need to file Form 1095-C (Employer-Provided Health Insurance Offer and Coverage).
Determine if you even need to amend a tax return
When the IRS corrects your taxes and doesn’t require you to attach any forms or schedules, you’re all set – no amendments needed from your end if you agree with the changes. If you disagree with the changes, you should respond to the letter within 30 days by following the instructions on the letter. However, you must file an amended return if your filing status, income, deductions or credits (e.g. a credit you’re not qualified to receive) needs changed.
How to fix tax return mistakes with Form 1040x
Use Form 1040X (Amended U.S. Individual Income Tax Return) to amend your return and mail it to the address included on the instructions. Note that this must be a paper filing, not online.
Form 1040X has three Columns: A, B and C. Let’s say your original amount was $1,000 and there is an increase to $1,670. So, here is what you would fill out:
- Column A shows the original figure before the amendments (i.e. $1,000).
- Column B is to report the amount of increase or decrease (i.e. $670), to which you explain in Part III.
- Column C is where you report the final figure (i.e. $1,670).
- Part III is reserved for an explanation of the changes that you are making. You can also attach any needed additional tax forms with your amended return.
Pay anything you may now owe
If you owe taxes after you’ve corrected the errors, you must pay the due amount before the filing deadline. After the deadline, the IRS will treat the taxes owed as back taxes and start charging penalties and interest on any delinquent balance. It adds up quickly, so be sure to stay on top of your game. If you can’t afford the owed amount, call a tax relief professional.
Providing proof to the IRS
When you don’t agree with the IRS’s math, there may be more proof needed on your end. The IRS may send you Notice CP2000 to outline the errors and additional tax. If you don’t address it, they will assess the proposed taxes.
Sometimes, tax discrepancies can be a symptom of ID theft. Use Form 14039 (Identity Theft Affidavit) to report IRS records with falsely earned income amounts. A service like TaxSafe™ can help monitor your IRS account health and ID theft to prevent, catch, or quickly deal with these types of scam situations.
Double-check and then triple-check everything
Nobody’s perfect – not even the IRS. Be sure to check all math, paperwork, (that you put in a secure place!) and amended documents that address tax return mistakes. If you’re not sure what to do next, contact your tax preparer or a tax professional who can help you take the next steps with tax problems.
The Truth About the IRS’s Private Debt Collection Agencies
April 19, 2018
The IRS has called for backup from the private sector, and these four companies could be coming after your tax debt in lieu of the IRS. Here’s what you need to know about private debt collection agencies (PDCs) to stay informed, lawful and safe.
What’s the deal with Private Debt Collection Agencies (PDCs)?
PDCs aren’t rookies to the federal tax debt collection game – they assisted the IRS in both 1996-1997 and 2006-2009. Despite warnings from the IRS and National Tax Advocate on the unsuccessfulness of these previous efforts – wasting money, yielding half the amount of collections, and contributing to inequities in the U.S. tax collection system – it seems that history is repeating itself.
Congress passed Fixing America’s Surface Transportation Act (FAST Act) in December 2015, which includes a section requiring the IRS to use PDCs for outstanding tax debt that the IRS is no longer pursuing. Now, the program is in full swing. The IRS has hired four PDCs: Conserve, Pioneer, Performant Recovery, and CBE Group. Though not all tax debt cases are eligible for PDCs to handle (e.g. offer-in-compromise, innocent spouse cases, deceased), you may be getting a notice that your account will be in new (private) hands.
What are the risks associated with PDCs?
The problems don’t necessarily lie with the four companies themselves, but the program’s loopholes. Here are some of the dangers associated with private debt collection:
- Scam magnets: More scam artists can pretend to be PDCs, especially because PDCs aren’t required to identify themselves as IRS contractors. Here’s a smart rule of thumb: Do not disclose any personal information to someone randomly demanding payment over the phone or internet.
- Elevated risk for low-income taxpayers: PDCs have an agenda to push people to make payments, even if the taxpayers can’t afford it. This can create economic hardship for people who would otherwise qualify for alternative payment plans by the IRS. National Taxpayer Advocate reports half of taxpayers outsourced have incomes of less than 250 percent of the federal poverty level (FPL) and nearly a quarter are at less than 100 percent of the FPL. The result is low-income, elderly, and income-restricted individuals are buried deeper in economic woes and unpayable debt.
- A lack of consumer awareness: The IRS wants consumers to know what’s up, but public awareness campaigns are minimal at best due to drastic IRS funding cuts. As a result, consumers are left in the dark and even more vulnerable to scams.
What you need to know to protect yourself:
- How the IRS works – The IRS isn’t like your crazy ex – the agency will never call or text you out of the blue to demand payment, but rather send you notices in the mail that progressively increase in urgency to act. If your case has been assigned to a PDC, the IRS will let you know so it won’t be a surprise.
- Don’t pay the PDC directly – Though the PDC is hired to collect your debt, you’re not actually writing out your check to them. All your repaid debt will go straight to the IRS as usual.
- Consult with a licensed tax professional – Turning to a licensed tax professional, which may include CPAs, enrolled agents or tax attorneys, can give you the support and direction you need regarding your tax debt. These experts can negotiate with the IRS on your behalf to relieve tax debt or tie-ups like liens, levies and wage garnishments.
While the lawfulness of PDC use is under scrutiny, it is today’s reality. The key to avoiding trouble is being smart about tackling your tax debt and not going at it alone.
Remember: It’s crucial that you never disclose information to someone calling or messaging to collect immediate payment. Instead, call the IRS directly to see if you owe taxes, or call Tax Defense Network for a free consultation at (877) 588-1098.
4 Practical (and Freeing) Ways to Celebrate Tax Day
April 12, 2018
Tax Day isn’t anyone’s favorite holiday. Whether you own a corporation or started your first part-time job last year, the April deadline is stressful for the entire U.S. population. But if you’ve filed your taxes on time this spring (by April 17), it’s time to celebrate. Here’s how you can kick back and relax at the end of this tax season:
1) Put your tax documents in hibernation: Time for those W-2s and receipts to catch some Zzzs in a secure place. Don’t throw them away, though: you may need to reference them if the IRS alerts you of mistakes that need to be corrected on your tax return, or if the IRS audits you.
2) Thank your tax preparer: Give a shout-out to anyone who helped you file this tax season, including CPAs or even your spouse. This is their busiest season, after all. Tax professionals can help beyond the preparation by reviewing amended returns, protecting against audits, and addressing back taxes.
3) Look for your tax refund to hit your bank account: Expecting a federal tax refund? The average federal tax refund is $2,895, which could mean it’s time to get those new shoes you’ve been eyeing. Your bank statement will show the extra cash typically within 21 days of your filing date. You can check with the IRS “Where’s My Refund?” tool for more information on your expected refund.
4) Have a glass of wine: Sit back and relax – you’ve earned it. #Cheers
Not celebrating this Tax Day because of owed back taxes? Tax Defense Network can help find the best solution for your situation and negotiate with the IRS on your behalf. It’s easy and free to get started. Call to speak with a tax analyst for your no-cost, no-commitment consultation today at 877-588-1098.
6 Ways the IRS Budget Cut Affects Taxpayers
September 20, 2017
The White House is saying “snip, snip” to the IRS’s budget this year, but not for the first time. The agency’s allowance has been cut by 20 percent in just seven years, even though it collects $4 for every $1 spent. Some Americans may be celebrating, expecting a seemingly less stressful tax year, but a slashed IRS means things like less funding for our nation’s many government programs, a wider tax gap, and more problems for everyday Americans who answer to Uncle Sam.
Here are six repercussions the IRS budget cuts have on taxpayers:
1. A slower (and downright miserable) customer experience – Call the IRS and you’ll likely sit on hold for over 30 minutes listening to Muzak. Due to staffing cuts over the years, the IRS doesn’t have the resources to provide efficient service for its overwhelming number of callers – both on and off tax season. Not only that, but many representatives who are answering calls are less equipped to deal with your issues quickly due to lack of training.
2. Fewer, less experienced, or even unethical representatives – An understaffed IRS does more than just hold up customer service lines – it delays Revenue Officer case assignment and adds to the timeline in which you resolve your tax debt. To fill the talent gap, the IRS rehired over 200 employees that have been fired for unethical behavior, like fraud, theft, and even taxpayer data abuse. The people you are supposed to trust could be a danger to your financial life.
3. Clunky and unsafe service-automation processes – Fewer humans means more robots. And for the IRS, the robots don’t quite measure up. For example, taxpayers have the right to appeal an IRS decision with a local Appeals or Settlement Officer, but 12 states are without any qualified local appeals staff. To discourage in-person appeals, the IRS has released a telecommunication system within its centralized appeal office. Non-local Officers understand less about local businesses’ challenges, are out of tune with regional issues and are lower-ranked employees who lack expertise and experience.
The IRS believes that technology can replace the local expertise at a lower cost, but this hasn’t yet shown true. In fact, visits to the IRS website decreased by 4.1 percent despite the push for more online services (enough to make that 30+ minutes on hold sound tempting). This combination of a limited local presence and a poor attempt at replacement with technology ultimately leaves taxpayers who need help out to dry.
4. A lack of taxpayer outreach and education – You may think the government is a pro when it comes to confusing the public about taxes, but the IRS wants you to be informed about (and comply with) tax law. Unfortunately, taxpayers are left in the dark due to lack of awareness and education when only four percent of the “Taxpayer Services” budget goes to working with organizations such as state tax authorities and volunteer groups (most of this budget goes to processing returns). More cuts will continue to widen the gap of outreach and support.
5. More scams and ID theft – Financial scams involving sensitive personal data are everyone’s worst nightmare. If the IRS can’t provide adequate education and awareness of how to mitigate these risks, fraudulent activity increases. Ignorance isn’t the only loophole – confidential data can be easily compromised to do a lack of sufficient infrastructure and technology. The IRS has made significant gains over the past few years, but maintaining the progress may become difficult with less financial support.
6. Debt collection from private companies – Congress recently ruled (again) that a portion of debt collection would be outsourced to private debt collectors (PDCs) – an approach that comes with its own set of issues. For one, a sizable percentage of government funding (25 percent) money now goes to PDCs instead of government programs. When prior private debt collection programs have proven to cost more than the government makes, it’s lose-lose for Uncle Sam and citizens. Taxpayers need to protect themselves and stay informed more than ever.
For people who have tax debt, these six issues aren’t making the already-difficult process any easier. Luckily, tax professionals can deal with the IRS on your behalf (so you can say “sayonara” to long hold times). If you have questions about individual or small business IRS issues, call Tax Defense Network for a free consultation at (877) 588-1098.
How Much Vacation Fun Can You Write Off On Your Taxes?
July 7, 2016
With summertime in full swing, you may be considering some much-needed time away from home. Whatever your travel plans, you might want to consider whether or not you’ll be able to take tax breaks for your time off. Believe it or not, there’s a chance that you’ll be able to take some deductions for that much-needed vacation.
Business and Pleasure
The best way to maximize your tax savings when you’re on the road is to incorporate your job into your travel plans; or, perhaps more accurately, squeeze pleasure time in between work activities. Your plane fare, lodging and even meals can be written off if the expenses are made under working conditions. So, just because you have to meet with clients doesn’t mean you can’t enjoy a dip in the hotel pool.
Passive vs. Active Business Trips
There are two types of common work-related trips: passive and active. A passive trip is educational in nature, such as a software training or an industry conference. An active venture involves actual work functions, like business meetings or factory inspections. Expenses for both passive and active trips may be deducted on your taxes – but just make sure that you’re actually paying the bill for these items. In other words, don’t try to write off expenses that your company is covering.
The Acceptable and the Unsuitable
The IRS will allow some tax deductions while rejecting others. Examples of acceptable tax deductions while you’re out of town for work include:
- Your rental car
- Luggage fees
- Hotel wifi service
If you’re combining your vacation with work, you can still take the above deductions if they’re for work activities. What you don’t want to do is attempt to write off expenses for your friend, companion or relative as work-related (unless he or she is a legitimate co-worker). Here are some examples of what not to include:
- Mom’s pedicure while you’re meeting with potential clients
- The kids’ theme park tickets while you’re on conference calls
- Family dinner after your seminar
If your family is tagging along and sharing your hotel room while you’re on the clock, that’s completely acceptable, but don’t try writing off obvious leisure and non-work items. Most importantly, don’t forget to keep receipts for every individual item you write off. While you want to take every deduction you can, you also want to avoid making a fatal error on your return.
How to Play It Smart
It’s a good idea to ask for help when you’re writing off vacation expenses. If the IRS sees anything they perceive as questionable, you might be in for an uncomfortable discussion about your return. A licensed tax professional can help you prevent any IRS issues from mistaken deductions or resolve an existing tax issue.