We’re way into August and okay just when you think you're done with taxes, you get a notice!
Well if this has happened to you, just know that you're not the first and you won't be the last. My best way to describe tax notices is the IRS asking questions about something you’ve said, or maybe forgotten to say. (Yes, they are actually listening). 1. MAKE SURE IT’S YOUR NOTICE AND IDENTIFY WHAT YEAR
First thing you want to do is make sure it to your notice. This may seem a bit obvious, but in this age of paper mail being delivered to wrong addresses you'd be surprised. Notice the tax year that will tell you what year they're questioning. That helps you focus your energy on gathering the right folder to find any discrepancies. Unfortunately, it can take a few years for IRS to catch up with you with questions that you may have to provide documentation for, so be sure and keep your records at least 3 years, if not a few more just to be safe. 2. IDENTIFY THE AMOUNT YOU’RE BEING ASSESSED
After you've done the preliminaries now it's time to get into the meat of the notice, starting with the first section, which is pretty much a summary, that includes any actual tax owed, any payments toward that tax, next interest and penalties, if any, the total amount due and when it is due.
If it’s the first notice, there’s a good chance that IRS is just “proposing” additional tax. If so, it will will actually say that and the amount due in bold letters, and then include the summary tax, interest, new amount and due date. 3. FIND OUT WHAT IRS WANTS YOU TO DO NEXT AND BY WHAT DATE
Next section actually appears before they’ve provided the details. It’s still helpful to know this though in case you’re tempted to put the notice down and forget about it
There's typically a phone number to call, which will usually get your call answered more quickly. Always have your notice available because they will ask you this information to provide answers.
You may also see what to do if you agree with the change, what to do if you disagree with the change, and then what IRS will do if they don't hear from you. Scary language indeed! 4. FIND OUT WHY YOU’RE GETTING THE NOTICE
We’re finally getting to why you got the notice in the first place. If it’s the first notice and you’re receiving it because of IRS records differing what you provided on your return, the notice will detail
- What your return said
- What was sent to IRS
- The difference, which is pure math. And more importantly how the differences affected not just your total income, but the new (proposed) tax on that income.
If you’re one of the lucky ones, yours will actually show the refund if the error was in your favor. Honestly, in years of doing taxes, I can’t think of even one notice I've seen like that. So here some common reasons why you may get a notice from IRS
- Mismatched or missing income.
Forms were sent to IRS but not included on your return. Income was reported but in in the wrong place of the return or didn’t match in type of income. Normally this happens because you forgot about a form, or it didn’t reach you in the mail. The most common form types are W-2, 1099, retirement, interest or dividend income.
- Education credit
- you claimed it, but weren’t entitled to it (this is a big one)
- Earned Income Credit / Child Tax Credit
- you claimed it, but weren't actually eligible to claim it, or claimed too much based on the IRS changes.
- Healthcare Marketplace Credit
- If you received any kind of premium reduction (tax credit), you have to provide a the reconciliation as part of your return, and if you reported it, IRS changes could have changed the results.
- Student loan interest
- maybe you claimed too much, based on your income (or your new income after IRS modified it)
- Additional Medicare Tax
(for high income earners). You didn't pay enough or after IRS changes, now owe it.
Unfortunately I can't list all of the possible reasons you're getting a notice here, but you can find the full IRS article here: https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter
5. TAKE ACTION
Make the call, send the return, sign the notice, etc. Whatever the instructions are, make sure you follow them, or at least call IRS so they can note your account and give further action or additional time. Take written notes of when you called. who you spoke with and their identifying number and keep with the notice.
If you don't take action, the issue will just get worse.
Be sure and connect with me on Social media, so you’ll hear about the FREE webinars I’ll be hosting on this and other small business tax matters.
Make it a great day - ESPECIALLY for your money :)