Audits, penalties and interest fees are just a few of the dreaded consequences of tax errors, so it's no wonder that people spend so much time afraid of the Internal Revenue Service. A minor mistake on your taxes, though, is unlikely to wreck your life, particularly if the mistake is obviously inadvertent. The IRS doesn't catch every mistake, which means you might not ever know about an error unless you check your own taxes.
Many minor mistakes, such as leaving off a zero, are automatically caught and corrected by the IRS. You'll likely receive a letter in the mail notifying you of the error, and the IRS will automatically adjust it. If, however, your mistake is more serious -- such as underreporting income -- you could be headed for an audit. Many audits start with a letter requesting more information or verification. However, the IRS doesn't catch every tax return error. If you think you might have filed an erroneous return that increases your tax liability, it's important to review your returns on your own or with the help of an accountant rather than relying on the IRS.
Other Notification Options
If you review your own tax documents, you might find that you've made a mistake either before or after you filed your taxes. Common errors include forgetting to report income, reporting income on the wrong line of the tax return and either neglecting or misreporting deductions. If you have an accountant, your accountant might be the one to catch the mistake. Some tax filing software automatically catches some mistakes, such as forgetting to sign the return or leaving required lines blank.
If your mistake means you reported less income or a lower tax liability, you might have to pay fines and interest. But if your correction reduces your liability, you could end up with a refund. You can use IRS Form 1040X to amend your returns. You'll need to provide information from your original tax return, as well as information about the changes you're making, including an explanation of your reasons for making the change. Send the form to the IRS after you've completed it.
Keeping all of your tax documents -- including receipts, bills, earnings statements and W-2's -- in one place can reduce your risk of making an error. If you have many deductions, try keeping a deduction log rather than trying to scan your bank account to find potential deductions. It's also important to report income for which you didn't receive a W-2, such as freelance or hobbyist income. Having an accountant double-check your work can save you the headache of trying to sort out a tax mistake.
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