Filing tax returns is everyone’s annual headache and the cause of sleepless nights for many. If you fail to report all your earnings, you can be subject to serious consequences such as audits or penalties.
Fortunately, the IRS allows taxpayers to correct errors and pay overdue taxes, even when it comes to underreporting income in Phoenix. A tax audit attorney with the Dayes Law Firm could assist you with accurately reporting your income and help you negotiate a payment plan if you are unable to pay the amount in full. Contact us today to discuss your options.
What Does Underreporting Income Mean?
Underreporting income simply means failing to report all your taxable earnings on your tax return, as a Phoenix attorney could explain. The IRS expects taxpayers to report all their income, including tips, under-the-table wages, and even illegal income (there is a line on the 1040 form for such income).
Underreporting often occurs through simple negligence or error. Late W2 forms, poor calculations of cash wages, or basic math mistakes can all result in underreporting income.
What Can Happen if You Underreport Your Income
Although the IRS takes this failure seriously, penalties are usually financial, not criminal. These penalties depend on an individual’s intent and how much income was not reported, as a lawyer in Phoenix could tell you. An honest mistake is treated less harshly than intentional fraud.
Non-willful underreporting of a minor amount usually receives a penalty of 20% of the amount of the tax that went unpaid due to negligence. The IRS charges interest on these penalties, which accrues from the date the penalty begins.
In the case of intentional fraud, the penalty is 75% of the underpayment, and criminal charges can result in fines of up to $250,000 and prison sentences of up to five years.
What To Do if You Think You Underreported Income on Your Tax Return
The IRS uses an automated system to cross-reference your tax return with quarterly returns filed by your employers. If there is a mismatch, they will send you a notice, called a CP2000 notice, and suggest changes to your return. If you receive this notice or discover errors yourself that lead you to believe you did not correctly report your income, our Phoenix lawyers recommend you act at once by:
- Contacting a tax attorney: An attorney could help negotiate a payment plan if you are unable to pay part of the penalty. You may be eligible for Currently Not Collectible status, which lets the IRS know you cannot pay your tax debt and the IRS at the same time.
- Reviewing your records: You must respond to the CP2000 notice and let the IRS know if you agree or disagree with the changes.
- If you found the error yourself, you may be able to file an amended tax return. An attorney could explain how to do this in a way that can reduce your penalties.
An attorney could also help negotiate an offer in compromise. This is an offer to pay a lump sum that is less than what you owe with a promise to pay all taxes in full in the future. In return, the IRS discharges the remainder of the current tax owed.
Get Help Today if You Underreported Income in Phoenix
Underreporting income can be corrected if you act quickly and are honest with the IRS. The Phoenix attorneys at Dayes Law Firm could help you amend your tax returns for underreported income and negotiate with the IRS to lower your penalties or help you get more time to pay. Call us for a free consultation.
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