Preparing for filing season: 3 things to know
Tax filing season begins on January 23, which is less than three weeks away.
Here are three useful things to know as you prepare.
There are several factors that can raise red flags that increase the odds of being audited.
Tax audits are not a common occurrence. Overall, the IRS only audits about 1 percent of returns.
There are, however, several factors that are known to make it more likely that the IRS will take a closer look at your taxes.
For example, one of the factors that can make audit odds go up is failing to report 1099 income. Taking large charitable contributions that are out of proportion to income is another.
Even something as seemingly innocuous as filing a paper return can increase the chance of an audit. This is because of the high error rate on paper returns.
Even if you don’t think you’ll be able to pay, you should still file.
Every year, about 1 in 6 taxpayers ends up with a balance due. That adds up to upwards of 26 million taxpayers.
Though some of these people may have the money to pay their taxes, many do not. But don’t think that you should avoid filing just because you don’t think you can pay. By not filing, you can get a failure-to-file penalty that only adds more to the balance you’ll have to pay off.
Of course you’ll still need to come up with a plan for paying your taxes. Many taxpayers are eligible for installment agreements, as we discussed in our October 23 post.
If you are experiencing financial hardship, you could be eligible for an offer in compromise or “currently not collectible” (CNC) status.
If you can’t both pay taxes and meet reasonable living expenses, it is possible that you can get the IRS to classify your tax debt as “currently not collectible.”
Another possibility is that the IRS will agree to an offer in compromise (OIC). An OIC resolves your tax debt for less than the full amount you owe.
In order to be eligible for these programs, however, you need to file your taxes.