Letter from IRS or State
A letter from the IRS is one of those notices you get that blow sirens in one’s head. If this is you, don’t fret. If you’ve received a letter from the IRS or the state, chances are that you’ve been contacted because of one or more of the reasons are stated below:
Mistakes on your return
We’re all bound to make mistakes. If your income or payment information on your return doesn’t match the information on the IRS’s database, it triggers CP2000 or other notices that may be issued in such situations. Some of the common mistakes are:
— Missing 1099-K or 1099-MISC:
A lot of taxpayers running online businesses use platforms and fail to report their income on their return simply because the commercial activity they carried out was not profitable.
- It is immaterial to the IRS and State(s) that your business failed to make profits. Hence, you need to accordingly hint them about this by filing a schedule C together with your schedule of expenses.
- A failure to do this attracts the cautionary letter which mandates you to amend the return accordingly.
— Rollover or withdrawal from a 401k or IRA:
- These 1099-Rs also fall into the category of frequently missed information, just like K-1s, 1099-DIVs, and other forms.
Failure to file a return
What happens when you fail to file your tax return? The IRS or the state (s) sends these letters notifying you of your default.
Not only intentional tax defaulters, but the same is also especially true for business owners who are ignorant that they are required to file tax returns even if their business didn’t record any activity for the year. There is also an applicable penalty for late filing of tax returns based on zero activity.
If you happen to find yourself on the wrong side of these legislations, kindly reach out to us to get tailored solutions to avoid future complications.
Audit/request for more information
Sometimes, the information provided on your tax return might be vague, suspicious, or insufficient. In this case, the IRS asks for receipts or other applicable documents to help them clarify whatever concerns they might have.
It’s very common for the IRS to spot irregularities in the form of overreaching tax deductions during audits especially from Schedule C businesses (Sole Proprietors, freelancers, single-member LLCs)
If the IRS comes calling and you’re not sure how best to represent yourself, or you could do with some professional support for added protection, kindly contact us.