If you discover that you have underreported your income on your tax return, you can file an amended return. An amended return is a new tax return that corrects information from a previous tax return. When you file an amended return, you must include any additional forms and schedules that were required for the original return.
The IRS recommends that you file an amended return as soon as possible to minimise interest and penalties. The sooner you file, the less interest and penalties you will owe.
If you cannot pay all of your taxes owed, contact the IRS immediately to discuss payment options. The subject notice of underreported income may be able to work out a payment plan with you or offer other options such as Offer in Compromise.
Strategies for Reducing the Impact of Penalties and Interest
One of the biggest questions we get here at The Tax Institute is how to deal with penalties and interest when it comes to underreporting your income. Here are a few strategies for reducing the impact of these penalties:
First, try to file your return as soon as you realise you’ve made a mistake. This will help reduce the amount of interest that accrues on your unpaid taxes.
Second, if you can’t pay the full amount owed, consider making an instalment agreement with the IRS. This will allow you to spread out your payments over time, and avoid additional penalties.
Third, if you have a legitimate reason for underreporting your income (for example, you mistakenly omitted some income from your return), you can request abatement of penalties from the IRS.
Finally, keep in mind that any penalties and interest incurred as a result of underreporting your income are tax-deductible! So be sure to keep track of these expenses come tax time.
Recovering from underreporting your income can be a daunting task, but it doesn’t have to be. By understanding the rules and regulations of filing taxes correctly, you can ensure that you are not subject to any penalties or fines due to omissions or mistakes. If you find yourself in a situation where you need additional help with your taxes, don’t hesitate to seek professional help from a qualified tax preparer who has experience with these types of situations. With their expertise on your side, recovering from underreporting your income will be much less stressful.