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Tax season — possibly one of the most dreaded seasons of each year. Doing your taxes can seem overwhelming. There are so many forms and things to keep track of. How do you know you’re getting it all right? And what happens if you get it wrong?
Today I’ll be sharing five common tax blunders and what to do about them! This will hopefully help give you more confidence when it comes to doing your taxes.
Obviously we all want to get it right on the first go, but sometimes we run into issues we didn’t foresee when it comes to our taxes. We teamed up with Community Tax to share solutions to five very common tax problems so you can file your taxes with confidence!
5 Common Tax Blunders and What To Do About Them
1. I lost my W2, what do I do?
If you misplaced your W2, don’t fret! There are ways to get a new copy. Having your W2 is important because it’s a record of your income and taxes paid throughout the year.
Your first option is to contact your employer or past employer directly. The Human Resources department should be able to issue you a new W2 right away. And while you’re on the phone with them, make sure you verify your address so that you know it’s being sent to the right place.
You can also ask the HR department if they are able to issue a digital copy. This can help you get your W2 much faster.
Another way to get a new copy of your W2 is to contact the IRS via phone at 1-800-829-1040. They will ask you questions to verify your identity (as they should, identity theft is a real issue!). And once that’s done, they’ll be able to send you a new copy.
Your W2 contains sensitive personal information that makes you more susceptible to identity theft if it’s not properly protected. Once a tax form goes missing, it’s a good idea to keep an extra close eye on your credit report for unsavory changes. Once you do have the correct information, file your taxes as soon as possible to keep your return from being flagged by the IRS.
Community Tax says you should still file your return by the deadline even if you don’t have a W2. You would use a Form 4852 Substitute and your last paystub to most accurately estimate the numbers. Of course, if you have tax questions, be sure to reach out to an expert.
At Community Tax, they’re dedicated to finding solutions and solving problems for people across all 50 states with a wide array of services including tax preparation, tax relief, accounting, and bookkeeping. As a full-service company staffed with a team of attorneys, CPAs, and enrolled agents, they’ve helped over 70,000 clients to date and have an A+ rating from the Better Business Bureau.
2. How do I report cancelled debt to the IRS?
According to Community Tax, “Also known as COD, a Cancellation of Debt is the result of a creditor discharging or forgiving debt for less than the full amount owed.” While it may be in your best interested to negotiate a COD with your lender, there is still an associated tax bill.
The amount of debt canceled is reported as taxable income. For example, you may have $10,000 in loan debt. If your lender cancels $2,000 of that debt, that number is taxable as income for you, the borrower.
This is because when the lender forgives your debt responsibility, the responsibility to pay back the loan proceeds also gets passed on to you. This is because once you’ve borrowed the money, they assume you have spent it — which is considered income.
To report this to the IRS, you need to file a 1099-C, Cancellation of Debt. If you don’t receive one from your lender, you need to request one to submit to the IRS.
However, there are exceptions, which you may or may not qualify for depending on your type of loan. More information on that can be found here.
3. How do I file a tax extension?
Many people file tax extensions for all different reasons. They are not necessarily uncommon and are meant to give you an appropriate amount of time to gather your information to submit an accurate tax return.
To do so, you need to file an IRS Tax Form 4868 – Application for Automatic Extension of Time to File US. Individual Income Tax Return. However, you are still responsible for paying due taxes. If you don’t there can be significant penalties. Extensions are not meant to avoid paying your taxes.
If you do need to file an extension, it’s best to work with an expert to do so to make sure you are doing it correctly.
4. I’m scared to do my own taxes, what happens if I get it wrong?
One common stressor when it comes to taxes is the fear of filing incorrectly. As our individual tax situations get more and more complicated, the sheer amount of forms, information, and tax rules can be overwhelming. It’s an understandable fear as there are many things that count as tax fraud, including:
- Deliberately Underreporting or Omitting Income
- Hiding or Transferring Assets or Income
- Overstating the Amount of Deductions
- Claiming False Deductions
- Claiming Personal Expenses as Business Expenses
- Creating False Entries in Books and Records
- Keeping Two Sets of Books
- Tax Evasion
- And Anything Else that Violates Codes Title 18 or Title 26
According to Community Tax,
To convict a person of tax fraud, the IRS has to prove the person had intent to misrepresent or provide incomplete data on a tax return. Generally, proving the intent of a taxpayer to violate tax law is difficult to prove. The IRS Criminal Investigation unit has to prove intent by providing very specific evidence as to your motives. This is why the government often chooses to pursue the taxpayer with a civil matter by simply presenting information that they underpaid their taxes.
That said, it’s important to make sure your taxes are accurate. Speaking from experience, if you are unsure of something on your taxes or if you’re doing something correctly, it’s best to consult an expert like the team at Community Tax.
When you hire Community Tax, you get access to tax professionals you can trust. Their team is made up of enrolled agents and CPAs with decades of experience. With expert guidance on your side, you can trust your taxes are filed accurately and efficiently.
Tax preparation services don’t have to break the bank. With Community Tax, you get more value for your money. They have the know-how to get you the most bang for your buck. Plus, They charge less than competitors but provide you with more-seasoned preparers.
5. I think I’m going to be audited – help!
First things first, don’t panic! An audit doesn’t mean you did something wrong. According to Community Tax, “The IRS chooses individuals based on random selection, computer screening or related examinations. You may be picked based on a formula or if your tax return is slightly not normal compared to most returns. Audits are also selected based on issues involving other taxpayers close to you whose returns were selected for an audit, like business partners.” Which means there are many factors going into who is selected for an audit.
Audits are done by independent parties to ensure fairness and accuracy. Your audit will be done either by mail or in-person and requires you to present all of your financial records. This can be extremely overwhelming and like in other tax situations we’ve mentioned in this article, it’s probably in your best interest to work with an expert.
If you do receive notice of an audit, respond as quickly as possible. Time is of the essence in these situations and you’ll want to make sure you take care of it as soon as possible.
Understanding how to make proper adjustments to tax withholding or estimated tax payments is vital when it comes to the health of your tax accounts. The Community Tax Assurance Program will make sure that when you experience a life changing event, your tax return will be accurate, and you are prepared for a successful outcome.
Filing your taxes doesn’t need to be overwhelming and confusing! You can feel confident about filing your taxes correctly, no matter your tax situation when you work with the tax experts at Community Tax. Learn more here!