Some taxpayers underreport their income intentionally to avoid taxes, but many underreport mistakenly because of a miscalculation, or a limited knowledge of tax laws. Tax Defense Network informs taxpayers that the IRS takes underreporting of income seriously and even if an error due to miscalculation has been detected, they will charge a penalty for the underreporting of income, or worse, proceed with criminal charges.
Tax Defense Network Salary: Correctly Reporting Income
To avoid IRS penalties, taxpayers need to understand exactly which items to include in their income. Apart from wages, salary and commissions, any money received through gambling, tips, side jobs, awards, prizes, and contest winnings are fully taxable. Taxpayers should always collect a receipt of income from any source, regardless of the amount, in case the IRS requires proof.
Tax Defense Network Salary: IRS Notice for Underreported Income
The IRS compares the information provided by taxpayers with the reports sent from employers, banks and other payers, with income and deductions being cross-checked. In cases where the IRS spots underreporting on IRS Forms W-2, 1098, 1099, etc, it will send an IRS Notice CP-2000 to the taxpayer involved.
A CP-2000 informs a taxpayer about the proposed adjustments to income, credits, deductions, or the amount of adjusted taxes that needs to be paid. Taxpayers can also expect to receive a Notice CP-2000 in cases of over-reporting income. In such cases, the IRS will provide information about the amount of the refund that will be sent.
If taxpayers disagree with the proposed changes, they can call the IRS. Tax Defense Network advises taxpayers to present documentary proof of their claims if they challenge the IRS’ changes.
Tax Defense Network Salary: Filing Taxes
Everyone dislikes filing taxes. Apart from money going to the government, the situation of having to deal with filing is a headache, and incorrectly filed tax returns can attract penalties. Whether taxpayers file for themselves or hire a tax preparer, having accurate figures on their tax return is important.
The IRS actively looks for underreporting because of the scale of this practice. Underreporting is the single largest contributor to the U.S. tax gap. From large corporations to small businesses, the self-employed to payroll taxpayers, underreporting is a common way to evade taxes.
Tax Defense Network provides this information to taxpayers in hopes that they prepare their taxes correctly and file them on time to avoid any IRS penalties or tax debt. Taking illegal means to save on taxes can only lead to trouble, so taxpayers should stick to using legal means, including tax credits and deductions, to bring down their tax liability.