Most of us are not exactly tax experts, even if we've been filing an annual return for decades. Tax codes tend to be complex, and they also can change at least a little every year, making it harder for the average person to keep up. To help you avoid having to wade through confusing regulations yourself, the Internal Revenue Service (IRS) gives regular guidance to taxpayers on its website. In a Jan. 30 press release, the IRS offered new advice on the things you must declare on your taxes this year.
"Remember to report all types of income on the tax return," the agency warns. "This is important to avoid receiving a notice or a bill from the IRS."
According to the IRS, there are five types of income you may need to declare on your 2023 return: goods created and sold on online platforms; investment income; part-time or seasonal work; self-employment or other business activities; and services provided through mobile apps.
"The IRS receives information from third parties, such as employers and financial institutions," the agency states on its website. "Using an automated system, the Automated Underreporter (AUR) function compares the information reported by third parties to the information reported on your return to identify potential discrepancies."
If you don't declare everything, the IRS will send you a Notice CP2000, which is a Notice of Underreported Income. "The CP2000 isn't a bill, it's a proposal to adjust your income, payments, credits, and/or deductions," the agency explains. "The adjustment may result in additional tax owed."
But you might not only be facing a bill for the taxes you originally owed in this case: Taxpayers can also be charged a penalty for a number of different reasons, including filing an inaccurate return. If you don't declare all your income, you may get hit with an accuracy-related fine from the IRS as well. For a substantial understatement of income, you could be looking at a penalty worth an additional 20 percent of your underpaid taxes.
"You can avoid a penalty by filing your tax return accurately," the IRS advises on its website.
Of course, accurately declaring all your income is not the only thing you need to take into consideration during this filing season. In order to "help make tax preparation smoother in 2024," the IRS also provided taxpayers with a checklist of other things to remember when filing their returns. Read on for five more tips from the agency.
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1 | Gather everything you need first.
iStockBefore you begin preparing your return, the IRS says you need to gather all necessary tax paperwork and records. This will help you avoid missing any deductions or credits, as well as file a complete and accurate tax return.
"Errors and omissions slow down tax processing, including refund times," the agency warns.
Not sure what all you need? According to the IRS, taxpayers should have the following information and documents prior to starting their taxes: Social Security numbers for everyone listed on the tax return; bank account and routing numbers; various tax forms such as W-2s, 1099s, 1098s and other income documents or records of digital asset transactions; Form 1095-A, Health Insurance Marketplace statement; and any IRS letters citing an amount received for a certain tax deduction or credit.
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2 | File electronically with direct deposit.
Hispanolistic/iStockIf you're particularly worried about potential refund wait times, the IRS says it is crucial that you file your return electronically with direct deposit. This is "the fastest way to receive a refund," according to the agency.
"Avoid paper returns," the IRS advises.
3 | Utilize free resources.
iStockDon't forget to go online for free help as well. The IRS wants to remind people there are free resources available to help eligible taxpayers file online. This includes the agency's Free File, which is a "free online alternative to filing a paper tax return" that is available to any individual or family who earned $79,000 or less in 2023.
RELATED: Don't Want to Pay for TurboTax? These 5 Tax Filing Software Are Free.
4 | Consider your filing options.
Studio Romantic / ShutterstockThe IRS says it is also important for people to think about how they want to file their taxes—whether that's personally filing taxes, using online filing services, or hiring a tax professional.
"Each one has its own benefits," the agency notes. "Taxpayers should decide based on their personal situation and comfort level with tax preparation."
But if you are hiring a tax professional, the IRS urges you to choose one carefully.
"Most tax return preparers are professional, honest and provide excellent service to their clients. However, dishonest tax return preparers who file false income tax returns do exist," the agency cautions.
5 | Don't wait when contacting the IRS.
iStockWith its final tip, the IRS reminds taxpayers that contacting the agency for help through a phone call may not be the fastest or most effective option. After all, call wait times can skyrocket during tax season thanks to an increase in demand.
"Don’t wait on hold when calling the IRS," the agency shares. "Use online resources at IRS.gov to get answers to tax questions, check a refund status or pay taxes. There’s no wait time or appointment needed—online tools and resources are available 24 hours a day."
Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.
