What To Do if You Discover Past Mistakes While Preparing Your Tax Returns in 2023Offshore Account Update
Posted on February 28, 2023 | Share
Tax Day is right around the corner, and that means most taxpayers are somewhere in the process of preparing to file their annual returns. While this process can be fairly straightforward if your paycheck is your only source of income, for many taxpayers the process of preparing their returns is a much more complicated process.
As a result, mistakes are fairly common. But, while this may be the case, it is not an excuse for underreporting or underpaying your (or your company’s) federal income tax liability. The Internal Revenue Service (IRS) routinely audits individual and corporate taxpayers—and it is planning to ramp up its auditing efforts starting in 2023—and even honest mistakes can lead to interest and penalties.
So, what should you do if you discover a past mistake while preparing your tax returns in 2023?
Two Options for Correcting Past Federal Tax Mistakes in 2023
If you discover that you made a mistake on a prior year’s federal income tax returns, you have a couple of potential options for correcting the mistake before it leads to an IRS audit. Depending on the nature of the mistake, how long ago you made the mistake and a handful of other factors, your options may include:
1. Filing an Amended Return
Many taxpayers can correct their past mistakes by filing an amended return. In most cases, this will involve appropriately completing and filing Form 1040X with the IRS. If filing an amended return is the right choice for your (or your company’s) circumstances, you should submit an amended return—along with payment of the taxes, interest and penalties owed—as soon as possible.
What if you can’t afford to pay what you owe? In this scenario, you have multiple potential options as well. An experienced tax lawyer will be able to help you choose between options such as submitting an offer in compromise (OIC), submitting an installment plan, applying for penalty relief and working to negotiate a settlement with the IRS.
2. Submitting a Streamlined Filing
In some cases, it will make more sense to submit a streamlined filing than an amended return. The IRS’ Streamlined Filing Compliance Procedures are available to taxpayers who have failed to accurately report (and pay tax on) their foreign financial assets. If you have failed to report offshore bank accounts or other foreign assets or income to the IRS, you should consult with a tax lawyer to find out if this is an option you have available.
What about simply including previously unreported income on your (or your company’s) 2023 return? Generally speaking, this is not a good option. The IRS requires taxpayers to report their income in the year it is earned. Past-due tax returns and tax payments accrue interest and penalties, so if you report past income as if you earned it in 2023, this can be classified as a form of tax fraud.
Request a Consultation at Thorn Law Group in Boston, MA
If you need to know more about how to correct a past tax filing mistake or resolve any other issue with the IRS, we encourage you to get in touch. To request a consultation with tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 617-692-2989, email email@example.com or contact us confidentially online today.