Basic income tax concern.

[CalvJon]

My concern may be a basic one for you. I am about to file tax returns for the first time in my life. I am pretty aware about the calculations and everything. What I am worried about is the process. I have read an article about common mistakes to avoid when filing taxes. This makes me more tensed, thinking what if something goes wrong. What if I make a mistake while filing taxes? Will I get an option to correct it or will I get any kind penalty?

MOD EDIT: Spam link removed.

[2Birds1Stone]

Are you in the USA?

Software like TaxAct or TurboTax should solve this dilemma for the most part.

[SeattleCPA]

If you have a simple tax return, you should find it pretty easy to DIY.

I agree with 2birds1stone that something like TurboTax or TaxAct is the way to go.

Regarding mistakes, the reality is (1) you probably will make mistakes but the combined effect will be minor especially as compared to the cost of preventing the mistakes by going to a good paid preparer... i.e., don't spend a dollar t to chase a nickle... and (2) if you make an honest mistake you have little to worry about because you may be able to fix it later and also if mistake is obvious and in your favor the IRS will reach out about fixing.

[MustacheAndaHalf]

The IRS consists of a bunch of human beings.  They aren't perfect, the IRS isn't a monolithic thing... it's a bunch of people.  They see mistakes all the time, and they can't assume every tax payer is perfect.

You might have everything about the IRS jumbled together, so I'll try to separate it a little.  You might screw up a number, and neither IRS computers nor audit checks notice anything.  Maybe nobody knows, and nothing happens.  Slightly more interesting is if you don't include some taxable income, but the IRS computers see that income.  You might get a fold-out postcard telling you the adjustment they would like to make unless you say otherwise.  Maybe they're adding in some bank interest you didn't list.  And I believe there's a couple levels of audits up from that - they see something puzzling and want more information.  There's also people who get into debt with the IRS and work out payment plans.  There's people who don't, and after years of defiance maybe the IRS takes some of their possessions.  And finally, finally... there are people who visibly and deliberately lie about the tax system to make a buck or to cause other tax payers to behave badly.  Again, that's visible and deliberately committing fraud.  Those are the people the IRS targets for prison time, not people who forgot their $20 in bank account interest.  There's a lot of layers and a lot of levels to the IRS audits, and your honest mistakes aren't likely to rank very high on their scales.

Hope that helps you relax going into your first time filing taxes.

[Dee18]

I suggest you first do your taxes without software, then check it with software.  If you obtain different outcomes, look into what is behind the difference.  You probably have many years of tax returns ahead of you so go ahead and invest a little time now to understand how it works. Until I began getting taxed in multiple states, I always just did the forms myself.

[Spork]

I'm not sure what "filing for the first time" means:

a) I'm just out of school and working my first job. 
b) I've always paid someone else to do it

If (a)... I'm going to bet your taxes are simple.  If all you have is W2 income and interest... you can do it with forms and instructions easily.
If (b)... maybe your taxes are more complicated.  And it could range from "have to figure out my basis on a few stocks" to "wildly complex."  If it's this one... I'd start with tax software.  I do think it's a good idea to go through the actual instructions and do it by hand at least once... to get a feel for what is actually happening.  But ... you might want to get a little confidence first.  They have a way of making their instructions overly complicated.  I know they're trying to be exact in their language, but ... I tried it once with a few investments 25 years or so ago and was so flustered that I went out and bought tax software the next day.

[robartsd]

There are a lot of websites where most people can do their federal income taxes for free. I've used FreeTaxUSA.com and my state's free online filing for the last several years.

[GizmoTX]

The problem with the official forms & instructions is that they're so circular, pointing you to other forms & lines that expect you to know how to eventually get back to the 1040 summation.

First make sure you have all your W2s (payroll) & 1099s (other income). Check all your bank & investment accounts for 1099s. Self employment means you may get 1099s & you'll have to deal with your side of FICA & estimated tax payments, plus allowable expenses for calculating deductions. Mistakes are commonly omissions; the IRS already knows about them but it's still up to you to pull them into your return.

The free online websites are a great place to start since they ask the important questions & put the resulting data where it's supposed to be on the forms. They'll try to up charge you along the way but you don't need that for just W2s & 1099s. Apps like TurboTax are for the more complicated situations including small businesses, home sales, stock trading, state income tax.

[RangerOne]

Assuming your in the US. Most of the errors in your link can be avoided by doing a simple reread of your final print out. Don't fuck up your social security number. That shouldn't be hard. If you use turbo tax odds are you won't miss a signature. 

If its your first odds are its simple, maybe one or two employers and its also for relatively low earnings. Which means you pretty much have zero chance of being audited. Audits are really reserved for people who either are high income with lots of paperwork, or take a zillion deductions that the IRS may wish to verify.

The IRS has an automated system to catch mistakes where it tries to make sure your tax return has reported all taxable income on all forms sent to the IRS. So the biggest mistake you can make that will get flagged by the system is to fail to report income that gets reported to the IRS. Keeping in mind income below around $250 probably doesn't even trigger a report to the IRS. So if you don't report the $0.40 cents of income your savings earned they wont give a shit.

There is virtually no real penalty for accidentally failing to report income or reporting you income that doesn't match the forms you got which are sent to the IRS as well. If you realize you did this, you can file a correction form after the fact. I haven't done this but you can update it with missing income or form corrections and they should send you back how much you owe them or they owe you.

If you don't realize you made a mistake and they find that you did they will email a CP2000 form probably 1-2 years after the year you filed. It will detail the discrepancies and tell you how much back taxes you owe. There aren't any penalties applied to this except you will owe them a trivial amount of interest on the back taxes.

Odds are the CP2000 will have a few minor mistakes in it because its automated and sometimes certain deductions you take wont get reported to the IRS. You can very easily fill out an appeal letter with your CP2000 and dispute some or all of the charges based on your own documents. Within about two months they made the corrections I added to the appeal and sent me an updated back tax amount that I agreed with and paid.

I was also relatively easily able to get a hold of an IRS rep on the phone to ask a few basic questions on how best to respond to disputes. For an understaffed agency I found the whole process fairly fast and reasonable.

But what I want to emphasis is that you really can't make a mistake that will hurt you horribly as long as you are fairly confident the majority of your income was taxed and reported correctly. The only penalty is they will correct your error and ask you for their money. They even have payment plans if you owe them a lot more than expected. Reread your paperwork carefully for big errors and don't worry about it.

The worst case scenario is likely a paperwork headache down the road. Just keep copies of your entire filing process and any thing you claimed, it will save you a lot of time in the future. Hard and soft copies, I lost a lot of useful info to a failed hard-drive. The IRS will only send you transcripts of past tax filings, if you want a full copy you need to pay and wait like a month. Keep your own just in case.

[robartsd]

The IRS has an automated system to catch mistakes where it tries to make sure your tax return has reported all taxable income on all forms sent to the IRS. So the biggest mistake you can make that will get flagged by the system is to fail to report income that gets reported to the IRS. Keeping in mind income below around $250 probably doesn't even trigger a report to the IRS. So if you don't report the $0.40 cents of income your savings earned they wont give a shit.

I don't know about $250 in missing income (that $25 in tax if you're in the lowest bracket). You're officially allowed to round to the nearest dollar, so their system likely has some automated threshold for "assume this is just a rounding error". I know from working at California's Franchise Tax Board that $25 was enough to trigger a letter on CA personal returns (in 2000), but the IRS may have a larger threshold.

[threefive]

You have to pretty much intentionally work to get in serious trouble with the IRS. Here's my horror story, to illustrate how easy it is to fix simple, honest mistakes:

One year, I forgot to report over $10,000 in income. It was for contract work in January and February. I didn't do any contract work for the rest of the year, so when I went to do my taxes over a year later, I just completely forgot about it. 1099 probably got lost in a pile of mail or something. Two years later, I'm getting letters sent from the IRS to my home. The thing is, I'm not living in my home at this point. I'm on a 6 month sabbatical in Europe. My house sitters are just collecting mail for us, and being good house sitters by not getting in to our business and seeing scary letters from the IRS.

I get home and find the letters, with the most recent informing me that the next one will be certified, putting the tax court process in play. OH crap! So I check my records, realize that oops, I didn't report that income. I call the IRS number to make sure they're not sending agents after me. I tell the IRS worker that I made a mistake, explain what happened, tell her that I've been out of the country and I just got home to the letters, and that I needed to pay them today to get everything squared away. Her response: she really wanted me to go back and just make sure I couldn't deduct some expenses from that income, because she was sure I could. No "pay now!" type of scare stuff you might get with a creditor. I knew I had some tiny deductions, but I also knew that the time and effort to deal with it wasn't worth it, so I just paid what the IRS calculated. Total penalty was about $50.

So, I failed to report over $10k in income. I owed Obama about $2,000 in taxes for two years. I then ignored half a year's worth of letters from the IRS, until they were ready to begin the long, arduous process of the court system. And when I finally called, they wanted me to make sure that I took advantage of every available avenue to pay them less. Penalties and interest on that $10k mistake amounted to about $150 total.

When you read horror stories about the IRS, you are probably not hearing the whole story. It takes some serious, intentional mischief to get the IRS to come get you.

[Hargrove]

I think threefive paints a slightly rosy picture, since there are jerks at the IRS just like there are nice people, but be aware that they're dealing with people who can't add, don't monitor their finances, and are used to blaming retail employees for their every problem every day, so they may be a little tired if you show up with an "I'll take you to the Supreme Court!" attitude. It sounds like you won't do that, so, great!

Then realize that only the middle class represents low-hanging fruit to the IRS. If you're filing because you're very young, you don't have much to worry about usually.

A wildly underfunded agency that's core to, you know, getting the money for roads and stuff, has to pick and choose where to send audits they can decreasingly afford. They don't give a damn if you keep $20 because you forgot to report the crockpot you sold on Ebay for $100 (and Ebay won't report it - I think Paypal reports 20k+ annually?).

The point is, it's totally not worth freaking out about screwing up your taxes by tiny amounts. Don't put in the wrong social security number or leave out 1099s or W2s from side jobs, but the tax industry and your bad-at-math family members are the reason for the totally silly national sense that taxes are hard (before you start talking about S-Corps and real estate LLC deductions and so on).

TurboTax will do boring tax returns for free.

[Jesstache]

I've done my own taxes for all but two  years.  When I got married, my husband had a "tax fairy" as he called her and lots of his friends used her and since he had a more complicated tax picture than I ever had on my own (per diem, out of state  rental house, etc) we used his lady and paid several hundred dollars every year.  Well... she made an error the first year on one of the simplest parts, AMT calculation, which was our actual tax basis.  We got a letter stating the error and how much more we owed.  We paid and that was it.  Next year she made another error somewhere else with a similar letter and payment outcome.  No big deal except I was done using the tax fairy.  The next year I went over all of her previous returns, figured out where her (some of them very creative) numbers came from and from then on I have done our family's taxes and haven't had an issue.

 We did get a letter two years ago stating we owed $7000 for unreported income of $20000 from my contract job.  That was shocking but i was 100% sure I had reported all my income so I sent back a letter stating pretty much that and if they had any questions to contact the company's CFO and included his contact information so he could verify.  After worrying for a couple months that it was going to be a bigger hassle than sending them a letter, I got a letter back saying they agreed with me and I owed nothing more.  So, paper audits are common and no big deal, at least in my experience. 

Chances are you're a standard deduction (I was until I got married) and super low risk to DIY, especially using a free online software like TaxAct.  I use Turbotax business online these days.

[With This Herring]

*snip*
The IRS has an automated system to catch mistakes where it tries to make sure your tax return has reported all taxable income on all forms sent to the IRS. So the biggest mistake you can make that will get flagged by the system is to fail to report income that gets reported to the IRS. Keeping in mind income below around $250 probably doesn't even trigger a report to the IRS. So if you don't report the $0.40 cents of income your savings earned they wont give a shit.
*snip*

Not quite. The threshold for unearned income is $10.  The threshold for issuing a 1099 on earned non-employee income is $600.  But the $0.40 on your savings account still doesn't matter.

You really should report all your income whether you received a 1099 or not.  So, if you mowed your elderly neighbor's lawn 50 times during the summer, and he paid you $20 each time, he doesn't have to issue you a 1099 for the $1000 (because he is an individual, not a business), but you still need to report this income.

*snip*
But what I want to emphasis is that you really can't make a mistake that will hurt you horribly as long as you are fairly confident the majority of your income was taxed and reported correctly. The only penalty is they will correct your error and ask you for their money. They even have payment plans if you owe them a lot more than expected. Reread your paperwork carefully for big errors and don't worry about it.

The worst case scenario is likely a paperwork headache down the road. Just keep copies of your entire filing process and any thing you claimed, it will save you a lot of time in the future. Hard and soft copies, I lost a lot of useful info to a failed hard-drive. The IRS will only send you transcripts of past tax filings, if you want a full copy you need to pay and wait like a month. Keep your own just in case.

Yup.  If you botch up, they will be pretty nice to you if it was a mistake and you are polite and apologetic.  +1 for threefive's story as well.

So, double-check that you typed in your SSN and bank account info correctly.  I hope you know whether you are married or not.  Use tax software to file, and don't forget to report all your income.