Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.
Well, to put it bluntly, you can get caught. And when you do, the tax man will force you to pay back taxes, in addition to penalties and interest.
So, why is forgetting to report all of your income a tax audit red flag? Because computers are very adept at matching all the income earned documents the IRS receives with what you report on your Federal Tax Return (Form 1040), that’s why. These documents include your employer’s W-2 and 1099s (whether they are bank, brokerage or independent contractor 1099s).
Even if it was a completely honest mistake or oversight in forgetting to report some of your income, the IRS has little tolerance for mistakes – and even less of a sense of humor about those mistakes.
They have zero tolerance policy for human error, so it’s always wise to consider investing in a tax preparer or other tax professional in order to make certain no numbers get left behind on your next tax document.
What’s the lesson here?
• Avoid the fairly common mistake of forgetting or failing to report a portion or portions of your income for the previous year.
• Keep accurate records.
• Take a note from Santa and check your list of income twice.
• Make sure the numbers are recorded correctly and double check for simple math errors in order to hopefully keep the powers that be at the IRS playing nice.
• If by chance you receive a 1099 that lists incorrect income earned or is clearly not yours, contact the issue to have the form corrected and refiled with the IRS.
Be on the lookout for the next article in the series: Tax Audit Red Flag # 4 – Charitable Donations Exaggerated.