Liberty Financial Solutions, LLC: We worry about the IRS so you don’t have to…

What’s the biggest mistake that taxpayers make? Truth be told, it’s not even close. It should also be noted that this mistake costs taxpayers millions of dollars every year in taxes, penalties, and interest.

And the winner is: failing to report all of their income!

Failing To Report All Income — Especially small, random, or third-party-reported items

You see, every year, people forget about and forget to report the following:

• 1099-NECs or 1099-Ks for side gigs

• Bank or brokerage 1099-INT or 1099-DIV forms

• Small freelance or contractor work

• PayPal/Venmo or other payment platforms that now issue 1099-Ks if you cross certain thresholds

   

Why This Is A Big Deal:

The IRS gets copies of these forms (1099’s, W-2’s, etc), and matches these forms to your return using their software. If you leave something off your return, they know about it.

Now, it often takes them a year or two to catch up, but catch up they will. Then, you’ll likely get a notice a year or two later with penalties and interest tacked on.

How To Prevent It:

• Keep a tax file or folder year-round — every time you get a tax document, drop it in.

• Double-check your IRS wage & income transcript (you can request it online) before filing if you want to see what the IRS has on record. You can also check every few months just to make sure something else doesn’t pop up. See the following for how to get your transcripts: https://www.irs.gov/individuals/get-transcript

• Be proactive with side gigs or freelance work — track your income even before the forms arrive. You can create a spreadsheet to keep track of what you get paid. There are plenty of free demos available that you can use as a go by.

Finally, if you you need assistance or want to talk to someone about your tax situation, please reach out to us at Liberty Tax Defenders for your free consultation!

Let us make sure you don’t make this mistake that costs taxpayers millions every year.