Solutons Lounge

How to Bulletproof Your Tax Return – Your Money Briefing


This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.

J.R. Whalen: Here’s Your Money Briefing for Wednesday, February 7th. I’m J.R. Whalen, for The Wall Street Journal. It’s that time of year to gather up all your paperwork and fill out your tax return. Sending it in on time is paramount, but so is avoiding mistakes.

Ashlea Ebeling: Well, simple things, like incorrect social security numbers. That can be fixed easily when you’re submitting your return. But the bigger issues are if you fail to report income inadvertently, like you forget something on your return, then that’s going to cause more problems later.

J.R. Whalen: We’ll talk to Wall Street Journal personal finance reporter, Ashlea Ebeling, about bulletproofing your tax return after the break.
The deadline to file your taxes this year is April 15th. Wall Street Journal personal finance reporter, Ashlea Ebeling, joins me with ways to avoid making costly mistakes on your return. Ashlea, how common is it for people to submit tax returns with mistakes?

Ashlea Ebeling: It’s actually in the millions. Most people really do file, and the return goes through swimmingly, but there are millions of people making mistakes, complicating their tax season.

J.R. Whalen: What are some of the more common errors that people make?

Ashlea Ebeling: Well, simple things, like incorrect social security numbers. That can be fixed easily when you’re submitting your return. But the bigger issues are if you fail to report income inadvertently, like you forget something on your return, then that’s going to cause more problems later.

J.R. Whalen: What happens if somebody sends out a tax return and then they realize they made an error? Before they get a notice from the IRS, they notice that, “Oh, wait a minute. I think I made some kind of an error.” What do they do at that point?

Ashlea Ebeling: So if it’s before the tax filing deadline, there’s an easy way to go online and file a superseded return. That’s basically just like a corrected return, so the IRS will see that one, and then you’re in the clear. If it’s after the filing deadline, it gets a little more complicated. You have to file an amended return.

J.R. Whalen: Why do people make mistakes when preparing their taxes?

Ashlea Ebeling: Taxpayers rushing is the main reason, trying to file too early before they have all their documents on hand. So having all the 1099s for other income, like pay for a gig job or capital gains from investments, you need those all on hand before you file.

J.R. Whalen: Oh, get all your paperwork together?

Ashlea Ebeling: Exactly. Another thing you can do that helps is pulling up last year’s return and going through all the items you reported there. You might see something like, “Oh, remember I closed a CD from that bank and I’ll have interest income that I need to report.” A lot of people have paperless banking now, so then they won’t be getting the paper documents to remind them to report the income. So you need to go back to those online accounts and actually download the statements.

J.R. Whalen: What happens if the IRS finds a mistake on your Tax return?

Ashlea Ebeling: So they’ll send you what’s called a CP2000 notice, and that would show the adjustments. One warning is, these can be incorrect because IRS only has so much information. For example, if you sold stock, they would get the proceeds from your broker on a statement, but you then would have to send in and explain what your cost basis is, so you don’t owe as much tax.

J.R. Whalen: If the mistake involves owing more in taxes than what you wrote in on your Tax return, when does interest start being assessed?

Ashlea Ebeling: Generally, it starts accruing right from the due date of the return up until when you finally actually pay the balance due. So that can really add up.

J.R. Whalen: What types of errors would typically trigger an audit?

Ashlea Ebeling: Probably the biggest is underreporting income, and then overstating deductions would also trigger audits. The IRS would compare your deductions to that of a similarly situated taxpayer and also to how they fit in your return. And some common ones that cause scrutiny can be the home office deduction if you don’t take this by the simplified method, and then charitable contributions that are outsized. And you really have to be careful to have the proper substantiation, because if you don’t, they can just be wiped out and you lose the deduction altogether.

J.R. Whalen: Ashlea, at this time of the year, we often hear about people who are the victim of scams from fraudsters claiming to be from the IRS. What do people need to know about communication from the IRS?

Ashlea Ebeling: Well, generally, they’re not going to call you. They’re not going to text you. They would initiate contact by mail. And then, what’s really important if you’re online is making sure you’re at IRS.gov. If you’re trying to file your taxes for free through any of the free file partners, always start on the IRS.gov website, and that helps with safety.

J.R. Whalen: And if somebody needs an extension to file their taxes, what’s the deadline to send in a request for an extension?

Ashlea Ebeling: You need to request the extension by April 15th. Although in Maine and Massachusetts this year, it’s April 17th. And you need to pay, so remember that. And the extension deadline itself then is October 15th.

J.R. Whalen: And asking for an extension does not delay the interest clock. Is that right?

Ashlea Ebeling: Right. So that’s what I mean by paying by April 15th. So you almost have to still do your taxes.

J.R. Whalen: So there’s no getting away from it?

Ashlea Ebeling: Right.

J.R. Whalen: So pay what you think you owe and then…

Ashlea Ebeling: And then that’ll help avoid penalties and interest down the line.

J.R. Whalen: That’s WSJ reporter Ashlea Ebeling. And that’s it for Your Money Briefing. We’ll be back tomorrow with WSJ contributor, Cheryl Winokur Munk, to discuss relief options for student loan borrowers.
This episode was produced by Ariana Aspuru with supervising producer Melony Roy. I’m J.R. Whalen for the Wall Street Journal. Thanks for listening.



Source link

Exit mobile version