Made a Mistake On Your Tax Return? Here’s What To Do.

Tax returns can be complicated and tricky to understand. Even for a professional, it can be surprisingly difficult to get every number and detail right.

Often, you only notice the mistakes when you take a casual look at your return days after you submit it online or drop it in the mailbox. Or worse, the IRS sends you a letter telling you something is off.

So is there anything that you can do after your return is in?

Actually, there's a lot that you can do. But if you don’t know where to start, it’s best to leave it to a professional. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about. We help people who owe back taxes or have back tax debt. Call us today for a free consultation.

3 Major Types Of Mistakes

There are many red flags the IRS looks for on each tax return, but here are 3 common ones taxpayers make.

1: Not reporting all your income. No matter how much or little you make, report everything. In some way or another, unless you run a strictly cash business (another red flag), all of your income is reported to the IRS. W2, 1099 and other forms you receive are duplicated and sent in to the IRS. If your reported income doesn't match theirs, that's a red flag.

2: Overstating business expenses. Depending on the type of job you have, there can be many legitimate expenses that your employer doesn't reimburse you for. If you’re a business, you might be tempted to write off just a little extra. These might be genuine deductions. But don't try to deduct something that's not on the approved list and don't claim deductions way outside the norm. Check with your tax professional and stay up to date with tax laws so you’re not padding your tax return with write offs.

3. Math errors. Whether you file electronically or still file paper forms, your information gets entered into a computer. And one thing computers are very good at is doing math. If things don’t add up, or there was an honest mistake in inputting the information, it can raise a red flag. A math error won't necessarily get you an audit, but it will get attention you may not want. Make sure to double check your returns and have a qualified tax professional assist you and keep you out of tax trouble.

Filing an Amended Return - The 1040X

Individual income tax returns filed with the IRS can be amended up to three years after the due date of the original return by filing IRS Form 1040X.

On a 1040X form, the IRS only asks to be shown what was originally filed, what the corrected details are and the reason why you need to make changes. The form also includes a section where you get to change the personal exemptions that you've claimed on your tax return -- just in case you make a mistake listing your dependents.

A few tips on filing your 1040X form

  • For each year that you need to make corrections for, you need to use a separate 1040X form and mail it in, in its own envelope.
  • Each form should have the return year mentioned at the top.
  • On the back of the form, you need to explain the changes you've made and your reasons for them.
  • Any schedules, forms or anything else that are affected by your change need to be sent in with the form.
  • If the corrections made to your federal form affect your state taxes, you need to send in a corrected return for that as well.

However, we strongly suggest consulting a tax resolution professional to help with your amended return. They can often file multiple years of unfiled tax returns, help you settle for a fraction of what you owe, and at the very least save you a headache.

You Have 3 Years

Many tax filers only notice a mistake on a tax return only when they look at it preparing their taxes the following year. Mistakes may come to their attention in one of several ways. They may share something with their tax preparer that they may have neglected to mention in a previous year. The tax preparer, then, may notice the need for amendments to a previous year's return, as well.

There is no set time period within which you must correct your return. You can do it any time you notice it. A general rule that the IRS follows, though, is to entertain corrections for 3 years after an original return is filed.

The 1040X is a paper-only form

Even if you always e-file your tax returns, you'll need to file the 1040X form as a physical, paper form. The IRS still isn't equipped to handle the 1040X form electronically. You also need to pay attention to where you mail it in - 1040X forms do not go to the same IRS service center address as regular returns.

If Correcting Your Mistake Results In More Taxes Owed, You Should Still Amend Your Return

If your tax return contains a mistake that shortchanges the IRS in a more serious way, chances are good that the IRS will discover it. For instance, if you made money off a freelancing job that you didn't file a 1099 form for, the IRS could find out and you could end up paying interest for a few years for the tax owed. If you catch it yourself, you'll save on interest, at least.

If you know you’ll have outstanding tax debt and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief and sometimes settle their tax debt for a fraction of what’s owed.


Self Employed? Smart Strategies for Minimizing Your Taxable Income

A lot of our clients that come to us with back tax problems are self employed. For one reason or another, they fall behind on their taxes. With COVID-19, small businesses have been hit the hardest and despite the government stimulus bills, there are still millions of businesses teetering on the border of failure. It’s understandable that a few of them fell behind on their taxes and we’re here to help.

Our firm specializes in tax problem resolution. We have CPAs, EAs and attorneys who can represent you before the IRS. We serve clients virtually so don’t hesitate to reach out. If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem.

Yet despite the COVID-19 pandemic, some businesses are actually doing much better this year, which means they’re going to owe taxes. So in this article, we want to share a few tips and strategies that can help prevent you from owing more than your fair share in taxes.

Being self employed is great in many ways. You can enjoy the freedom and flexibility of working from where you want when you want, and you can build your own client list and keep all the profits from your hard work.

All that is great, but there is a significant downside to being self employed, one that can take a bite out of your wallet. That means if you are self employed, you have two jobs - delivering a quality product to your clients and minimizing your own taxable income. Here are some strategies for keeping your taxes as low as possible.

Shelter Income with a Self-Employed Retirement Account

One of the biggest perks self employed men and women have is the chance to shelter significant sums of money through specialized retirement programs. Aimed directly at the self employed, these retirement plans offer enormous benefits, and the chance to sharply reduce your taxable income.

Opening a SEP-IRA is one of the simplest ways to shelter your self employment income and save for the future. The SEP-IRA works just like a traditional IRA; the main difference is that this program is designed specifically for the self employed.

If you are willing to do a bit more work and keep a few extra records, you can shelter even more of your self employment income with a solo 401(k). The solo 401(k) is basically the self employment equivalent of the traditional 401(k) you are used to, but you control the money and how it is invested. Best of all, the contribution limits for solo 401(k) plans are even higher than those for traditional 401(k) plans, and maxing out could sharply reduce your tax bill when filing season arrives.

Contribute to a Health Savings Account If You Can

One of the biggest challenges self employed individuals face is how to pay for health care. The price of privately purchased health insurance plans can be quite high, and that can make affordability a real issue.

One way to save money is by purchasing a high deductible healthcare plan, and many self employed people choose that option. If you do purchase such a plan, you may be able to reduce your taxes with a health savings account, or HSA.

To be eligible for a health savings account, you must have a qualified high deductible health plan in place. Medicare recipients are not eligible for health savings accounts, but you can contribute pre-tax money and enjoy tax-deferred growth all the way out to age 65.

Push Payments into the Following Year

Compared to their traditionally employed peers, the self employed have a great deal of control over their income and how they are paid. This control can extend to when you receive payment for services rendered, so consider deferring those end of year payments to reduce your current year taxes.

If your clients are willing to go along and the timing is right for you, deferring payments until the next calendar year is one more way to reduce your taxable income. You will need to settle up with the IRS eventually of course, but this strategy can work well if you expect next year's income to be significantly lower than the current year.

Shift Investment Income into Tax Sheltered Accounts

If you earn investment income as well as self employment income, shifting those funds into tax sheltered accounts could lower your taxes and let you keep more of what you earn.

Keeping income generating investments like bond funds and dividend paying stocks in your IRA, for instance, is a good way to reduce your taxable income. This strategy will not work if you need the extra income now, but if you can live without it you can save money on your taxes.

Working for yourself can be great, but it can also be quite taxing. If you want to cut the high cost of self employment while still enjoying the freedom and flexibility, the tips listed above can give you the best of both worlds.

OWE BACK TAXES?

If you’re going to owe money to the IRS after filing your return that you won't be able to pay, It’s important to note that only experienced firms like ours are able to handle tax debt cases since negotiating with the IRS requires specialized skills that often fall outside of the scope of most conventional accounting, tax, and tax law firms.


Recordkeeping Tips for Freelancers and Gig Workers So You Can Avoid Getting in Tax Trouble

If you are working as a freelancer or gig worker, you are certainly not alone. Millions of men and women are earning extra income driving for ride sharing services, designing websites for online entrepreneurs and writing for local businesses.

Some freelancers and gig workers have even said goodbye to their traditional careers, trading the security of a steady paycheck for the freedom and flexibility of gig work and freelance clients. But whether you are freelancing full time or just for extra cash, you need to keep careful records so come tax time, you can stay out of tax trouble.

Note: If you fall behind on filing your taxes, you’re not alone and we can help. Reach out to our tax resolution firm and we’ll help you file late tax returns and negotiate with the IRS if you owe back taxes.

Set Up a Separate Bank Account

Freelancers and gig workers play many roles but they all have one thing in common, they are also business owners.

Whether or not you have incorporated your business or formed a formal business, you do operate your own business. That means you need a separate bank account to collect your earnings and pay your expenses.

If you have not already done so, you should set up a separate bank account for your freelancing income. If you do have a formal business structure and an employer identification number (EIN), you can use that information to open the account. If not, you can simply open a second account to collect your payments and take care of any business-related expenses.

Print Reports from Payment Providers

Gig workers and freelancers are paid in many different ways, from direct payments from clients to automated clearinghouse (ACH) transfers to their bank accounts. These independent workers may also receive payment through third party apps like Paypal, Stripe and Payoneer, and keeping it all straight can be a real challenge.

Luckily many of the major payment providers make it easy to find out exactly how much their members received during a given time period. If you want to see where you stand, and how much tax you might owe, sign on and print out a payment report from every provider you receive income from.

You can fill out those reports with your own carefully kept records, including documentation of direct client payments and bank transfers. If you are unsure how much you have received via ACH, you can check with your bank or request a written report.

Signing up for a bookkeeping service or bookkeeping software can also help keep track of all your income and expenses.

Maintain Contact Information for Everyone You Have Worked For

During the course of a single year, freelancers and gig workers may work for dozens of individuals and companies, and they may receive payments from just as many sources. In a perfect world, everyone who hires those freelancers and gig workers would maintain their own records and send out 1099s for tax purposes, but that is far from guaranteed.

If you want to avoid unpleasant entanglements with the IRS, you need to keep your own records and check off each 1099 as it comes in. If you earned income from a client and do not receive a 1099, it is your responsibility to follow up and get the proper paperwork, so make your life easier and keep contact information from everyone you worked for, even if they were only a one-time client.

Keep a Running Tally with a Spreadsheet

It can be hard to track your income from freelance jobs and gig work, but a spreadsheet will make it easier. If you want to avoid underreporting your income and the tax penalties that could bring, set up a spreadsheet and record every dollar you earn from your freelancing and gig work efforts.

Keeping a running tally of your freelance and gig work income serves a number of different purposes. For one thing, it will help you determine the amount of your required quarterly income tax payments, so you do not overpay or underpay what you owe. Tallying your income as you go can also help you see how you are doing, making it easier to ramp up your freelancing and gig work efforts as you go.

Measure, Photograph and Document Your Home Office

As a freelancer or gig worker, you may be eligible for some generous income tax deductions, including a write-off for your home office. If you operate your freelancing business out of your home or find gig clients there, you may be able to deduct part of your utility bills, rent or mortgage and other applicable expenses.

Not just any space will do if you want to take the home office deduction, and proper documentation could be the difference between a valid deduction and a disallowed one. You must use your home office solely for your business, and it is important to keep careful records to avoid problems with the IRS.

That means measuring the space your home office occupies, so you can compare it to the total square footage of your home. It also means photographing the space, so you can show those images to the IRS if they question the deduction.

Scan Receipts to Make Tax Deductions Easier

You may also be eligible for additional tax deductions, including write-offs for office supplies, internet access and the like. But you will need to back up those deductions if the IRS comes calling, so make sure you have all those receipts on hand.

A shoebox full of paper receipts will not do, so make sure you scan or photograph those documents and keep them in a safe place. That could mean setting up a folder on your hard drive (with a backup plan in place), uploading the images to the cloud or a combination approach designed to safeguard records of your business-related purchases.

Life as a freelancer or gig worker can be wonderful, but keeping proper records is essential. From making tax planning easier and less stressful to saving you money, there are many advantages to keeping careful records.

If you do run into tax trouble, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem.


9 Common Mistakes First Time Tax Filers Make That Can Land You In Tax Trouble

Being an adult has its perks, from being able to rent a car and book a hotel room to the chance to earn a living and rent an apartment. But life as an adult also comes with some challenges, including the burden of filing and paying taxes.

If this year is the first time you will be filing a tax return, it is important to plan ahead. Mistakes are common among first-time filers, and those blunders could delay a much-anticipated refund or even trigger an audit from the IRS.

Here are 9 of the mistakes first-time filers are likely to make - and how you can avoid them.

Note: If you or someone you know owes back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about.

1. Forgetting to file

When filing taxes is new, it is easy to forget to do it. Forgetting to file is a big risk for first-time filers, one that could have long-lasting implications for your adult life.

2. Not reporting all your income

As a first-time filer, it is easy to forget to report all your income, especially if you work a side hustle or participate in the gig economy, Failing to report all your income is a big no-no, and this mistake could trigger a visit from the IRS.

3. Not tracking the cost basis of your investments

If you invest in stocks, bonds or mutual funds, you may owe capital gains tax when you sell, so it is important to track the cost basis as you go along. If you fail to track the cost basis, you could end up overpaying taxes on any future sales.

4. Paying for a refund anticipation loan

As a first-time filer, you are probably anxious for your refund, but paying to get it could be a big mistake. Unless you are in dire need, it is better to wait the 7-10 days for your e-filed return to be processed and your direct deposit to land in your bank account.

5. Choosing the wrong filing status

If you choose the wrong filing status, your return could be delayed, or even rejected outright.

6. Not asking your parents if they are claiming you on their tax return.

If your parents are still providing support for you, they may be able to claim you as a dependent when they file their taxes. If you incorrectly claim yourself as a dependent in this situation, you could be in trouble with the IRS. Even more importantly, you could land your parents in hot water as well.

7. Failing to claim all your deductions

From student loan payments to mortgage interest, the IRS provides a wealth of deductions that can reduce taxes for first-time filers. Failing to claim those available deductions is like leaving money on the table.

8. Waiting until the last minute

Many first-time filers assume that their returns will be simple, and that they can wait until the last minute to file. If you wait until April 15, you will be at the mercy of everything from closed post offices to a failed internet connection, so start early and get this chore out of the way as soon as possible.

9. Not planning for next year

When you are neck deep in tax paperwork, it is hard to see ahead, but failing to plan for future taxes is a big first-time filer mistake. Now that your return has been filed, do some homework on additional tax deductions, including those for 401(k) and IRA contributions.

The April 15 tax filing deadline will be here before you know it, and when it is over you will have officially become a taxpayer. If you want your first foray into taxpayer status to be a successful one, avoiding the 9 mistakes listed above is a good place to start.

If you know you’ll have outstanding tax debt and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief and sometimes settle their tax debt for a fraction of what’s owed.