For a lot of people, this time of year (aka tax season) is scarier than a haunted house. It’s when you have to face the IRS all over again.
The natural starting point for that is to start organizing all those tax records of yours that document your financial situation this year — including any changes you experienced in 2024. (You kept track of all those… right?)
Another big shift to consider is that we’re officially under a new administration. That means tax land will look different this year and in the years ahead, from IRS hiring freezes to the possible extension of the TCJA.
With all the changes you’ve experienced, and the ones we’re expecting during the next four years, there’s one thing you can always count on: Uncle Sam is going to get paid. And there are tax problems with the IRS to always look out for. If you’ve been following along with my previous notes, you’ll already know a few of them.
This is the final chapter of my 3-part series on the most common tax problems and taxpayer disputes I see coming through my McMinnville door – focusing on four high-consequence issues.
- Dispute #7 – Identity theft
Getting a “you already filed a return” notice from the IRS when you know you haven’t filed means you’ve probably become a victim of tax identity theft. And as if that stress isn’t enough, the process of correcting the fraudulent return can be a long, drawn-out nightmare.
If you haven’t had your identity stolen, or if you have and never want to go down that road again, there is an option for more protection. An IP PIN is a 6-digit number known only by you and the IRS.
The IRS uses this number to verify your identity when you file your return, and it goes a step further to prevent anyone else from filing with your name, SSN, or ITIN. Getting your IP PIN online is fairly straightforward and requires you to pass an identity verification process.
Note: You’ll need to retrieve your IP PIN each calendar year online starting mid-January.
- Dispute #8 – Filing status
It might seem inconsequential, but choosing the wrong status on your tax return can significantly impact your tax liability. Claiming Head of Household, for example, without qualifying is a common mistake with my Yamhill County clients over the years. There are specific, due diligence requirements for every status you claim on your return. If you fail to meet requirements for those, penalties start at 500 dollars.
- Dispute #9 – False claims of deductions and credits
When you’re trying to keep as much of your hard-earned money in your account as you can, it can be all too easy to rush the process and end up owing more than when you started. Complex deductions — like those for electric vehicles, for instance — often come with intricate eligibility requirements and limitations, like meeting specific income thresholds, purchase-by dates, etc.
Misinterpreting these rules can lead to incorrect filings and potential penalties.
Take the Child Tax Credit (CTC), for example. The CTC has eligibility requirements based on income, filing status, and the age of the child. I’ve seen plenty of clients mistakenly believe they qualify when they don’t, leading to incorrect claims and potential audits. Falsely claiming credits or deductions on your tax return can mean a penalty that’s 20 percent of the excess amount claimed.
- Dispute #10 – Inaccurate income reporting
I’m wrapping up our top 10 list with this one because it is the most frequent issue triggering audits. Many people I’ve amended tax returns for have overlooked side income from freelancing, gig work, or investments because those jobs can often feel a bit more “under the table” than a typical 9 to 5.
If you’ve supplemented your income by selling goods online, renting out equipment you own, or perhaps driving for a lift service, you’ll need to pay estimated tax and record all your income on your tax return. If the IRS senses that you have underreported your income, you may be subject to a penalty of 20 percent of the amount missing from your return. So if you don’t report any of your side hustle income, that’s going to hurt.
The best defense is a good offense, and your taxes are no exception. You might not want to think about your taxes before April but trust me, your future self will thank you. That’s why you want to keep detailed records of what’s happening in your financial life throughout the year and develop a plan for protecting your personal information. Also, be sure to do your research when claiming credits and deductions (or consult someone who already knows the ins and outs of it *ahem*).
But here’s the thing: even when you give it your all, tax problems can still arise. So, you need to go a step further. Give me a call, and we can proactively address potential tax problems before they escalate into major ones.
Helping you warm up your offense,
Lisa Heckman
