Most filers receive refunds when tax time comes around. Remember, when you receive a refund for tax year 2013, it does not mean you can forget about an audit. Jeff Bergman, CPA, Tax Manager at Salmon Sims Thomas discusses five ways to work with the IRS after Tax Day.
1. Save all documents and paperwork. It is important to save documents, like checks and other records, that can back up deductions and other items. Three years is usually when the statute of limitations expires for an audit. However, know that the IRS can take six years to check if you minimize your income by 25 percent or more. This is why it is important to save documents and paperwork even if you think it is unnecessary.
2. Remember that all returns are scanned. All returns go through IRS computers, whether they’re early or late. They are scanned for arithmetic errors and single out returns for audit on the basis of a top-secret scoring system. Agencies then analyze high scorers and determine which ones should truly be examined. Some Form 1040s are chosen at random as well. The selection process takes into account the amount of your itemized deductions on Schedule A of Form 1040 compared with the total taken by others with similar income amounts.
3. Don’t think you’re stuck. Think you overpaid for tax year 2012? Recalculations on IRS Form 1040X usually do not take too much time. Just make sure you complete Form 1040X within three years after the return’s filing deadline.
4. Double check every notification. Sometimes people receive computer-generated notifications of an unreported income. Do not send a payment to the IRS without checking on whether you definitely omitted income. The IRS sends out inaccurate notifications every year. The 1099 forms that reflect payment received by freelancers from clients, dividends from stocks and interest from savings accounts are sometimes miscalculated. It is vital to check and double-check every notification. The IRS may make a mistake and if you catch it early, you can fix it before it is too late.
5. Keep the IRS in the loop. It is very important to notify the IRS of any changes such as a move or change in address. Use Form 8822 to file for a change in address. A bill for additional taxes or a notice that has selected your return for an audit could be sent to the wrong address if you haven’t otherwise notified the IRS. Also notify the Post Office if you are expecting a refund. This can also help with forwarding any checks to the new address (if you have not authorized a direct deposit refund option from the IRS).