Complete Tax

By Robert Steere, Toolkit Staff Writer

In the tax world, we all tend to build up to the final April 15 crescendo for filing our personal income taxes. And then? Well, there's a bit of a thud—a sudden drop in pressure. We begin to realize that a burden has been lifted and we don't have to think about taxes anymore—for awhile at least.

Before you completely turn your attention from the world of taxes, it may be worth giving consideration to a few useful tips on how to handle tax events and activities that oftentimes occur outside the normal ebb and flow of the annual tax season. How should you react if you get a notice from the IRS? What do you do if you discover you goofed on your return? What record keeping habits can you develop to make tax preparation easier next time? Take a moment to look at some of the tips that the IRS offers in response to these questions.

Oh, No! I Got an IRS Notice!

If you receive an IRS notice, don't worry, you're not alone. The IRS sends millions of letters and notices to taxpayers every year. In case one shows up in your mailbox—and it will be your mailbox, as the IRS never communicates by email—here are some tips you should keep in mind:

• Don't panic. Dealing with many, if not most, IRS letters and notices can be simple and painless.
• The IRS may send you a notice for any of several different reasons. It may request payment of taxes, request additional information, or notify you of changes to your account.
• Any letter or notice you receive from the IRS normally covers a very specific issue about your account or tax return. And it will provide specific instructions explaining what you must do, if you need to do anything, to respond.
• If you receive a correction notice, making a proposed correction to your tax return, you should review the correction notice and compare it with the information on your return. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice instructs otherwise. If you do not agree with the correction made by the IRS, it is important that you respond as instructed. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
• Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the letter or notice with you when you call so that IRS staff can better respond to your inquiry. It's important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at the IRS website.

Argh! I Goofed!

What do you do when you discover that you made a mistake on a tax return you recently filed? Well, don't worry, because you can make changes and adjustments to your tax return. And it's not too difficult if you know the standard forms and procedures used in the process. Here are the things the IRS considers important for you to know about amending your federal tax return:

• If you need to amend your tax return, use Form 1040X, Amended U.S. Individual Income Tax Return. Use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ. The Form 1040X can be used to correct a return you filed electronically; however, you can only file an amended return as a paper document, not an electronic one.
• You should file an amended return if you discover any of the following items were reported incorrectly: filing status, dependents, total income, deductions or credits.
• Generally, you do not need to file an amended return for math errors. The IRS will automatically make the correction. Nor do you usually need to file an amended return because you forgot to include tax forms such as W-2s or schedules with your return. The IRS normally will send you a request asking for such documents.
• Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
• If you are amending more than one tax return, prepare a Form 1040X for each return and mail them in separate envelopes to the IRS office for the area in which you live. The Form 1040X instructions list the various office addresses where amended returns should be sent.
• If the changes involve a schedule or form that was or should have been attached to your tax return, you must attach the corrected schedule or form to the Form 1040X.
• If you are filing to claim an additional refund related to your 2009 tax return, wait until you have received your original refund before filing Form 1040X. You may cash the original check while waiting for any additional refund.
• If you owe additional tax for 2009, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

With these helpful hints, the process of amending your tax return should be relatively simple and, if the amendment results in a larger refund, then that is cause for celebration!

It Oughta Be Easier!

Why is the process of gathering records and receipts and reporting income and expenses on a tax return so painful every year? There must be a simpler way! There is. If you can simply establish a few basic record keeping habits, tax time won't be such a pain. You have many records that may help document items on your tax return—documentation you will need should the IRS select your return for examination. Here are some tips from the IRS about keeping good records:

• Normally, tax records should be kept for three years. Some documents—items such as records relating to a home purchase or sale, stock transactions, an IRA, or business or rental property—should be kept longer.
• In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return.
• Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.

Routinely keeping such records, and having a special place where you keep them so that you always know where they are, will make tax compliance much easier for you. For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available at the IRS website.

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Posted April 20, 2010.