Taking the wrong tax deductions can cost you time and money. If you're depending on a tax refund, a tax return that is improperly filed can keep you waiting for a long time. You may also get back less than you expected.
Common mistakes
If the Internal Revenue Service suspects errors or requires proof of deductions, you may be asked to provide back-up documents to prove your numbers and amend the return. "If the IRS requires further information," advises Bill Symons, president of Computer Accounting Services in Oswego, N.Y., "You'll receive an official request by mail. Normally the situation is easily rectified, but it can delay refunds by up to 10 to 11 months."
A small mistake, such as entering a deduction on the wrong line, can be the difference between paying the IRS and getting a refund. Some common mistakes that taxpayers make include:
- The wrong amount for the deduction
- Addition and subtraction errors
- Forgetting dependent and child care credits
Remember, when you use TurboTax to prepare your taxes, we handle all of the calculations and enter them into the proper forms for you. We also double-check your returns for errors before you file.
Delayed tax return
When an improper deduction is made on a tax return, it can raise a number of red flags that require IRS to review it. This takes time. Two reasons why your return may require extra processing time if the wrong deduction is made are:
- An improperly filled out return
- The return is flagged as having a possible identity theft or fraud
Calling the IRS and requesting information on your refund won't help either, unless your return was filed over 21 days ago electronically or mailed 4 weeks ago. The IRS will not give you an expected date of receipt until it is approved. Ordering a tax transcript will not provide any information on your refund, because the codes used on the transcript can be different for each individual situation and may have nothing to do with the amount of the refund and when you can expect to receive it.
Amending a tax return
If the IRS finds errors or needs more information to complete its deliberation, you will receive a letter in the mail. This means an amended return might be necessary. The form normally required is 1040-X. Make sure all information is accurate and contains what the IRS specifically requested. Ensure Social Security numbers are correct and deductions are entered properly, including any tax credits.
Dealing with incorrect refunds
At times, if a deduction is improperly entered, the amount you expect as a refund isn’t what the IRS sends. You can expect the refund check and the explanation letter to arrive at different times. If you have questions, you can call the IRS while you wait for the explanation letter to arrive. If the check is smaller than you expected, it’s generally OK to cash it. If the check is more than you anticipated, you can cash it but you should be prepared to pay back any amount that you should not have received.
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FAQs
Penalty Rates: IRS penalties for false deductions can range from 20% to 75% of the underpaid tax, depending on the circ*mstances. Interest Charges: Accrued interest on the unpaid tax amount will also contribute to your financial obligation.
What happens if my tax withholding is wrong? ›
If the amount under/over withheld is deemed too excessive, the IRS can send a lock-in letter notifying the employer how to adjust withholding regardless of the employee's W4 requests. If a W-4 error is caught before filing, individuals can correct this relatively easily by refiling a W-4 with their employer.
What is the penalty for doing taxes incorrectly? ›
In cases of negligence or disregard of the rules or regulations, the accuracy-related penalty is 20% of the portion of the underpayment of tax that happened because of negligence or disregard.
What happens if you file a tax claim very wrong? ›
You cannot go to jail for making a mistake or filing your tax return incorrectly. However, if your taxes are wrong by design and you intentionally leave off items that should be included, the IRS can look at that action as fraudulent, and a criminal suit can be instituted against you.
At what point does the IRS put you in jail? ›
You can go to jail for not filing taxes. The tax law provides for a year of imprisonment for every unfiled tax return. However, this harsh penalty is only sought for taxpayers who willfully fail to file returns and also decline every opportunity to resolve their tax issues.
Will the IRS know if I lied on my taxes? ›
You will have to provide documentation to the IRS so they can determine if you lied, misrepresented your income, or otherwise incorrectly paid your taxes. In some cases, an audit will include in-person interviews.
What will happen if you enter the wrong amount on federal income tax withheld? ›
If the W-2 withholding does not match what you reported on your return, the IRS will adjust your return, and send you a letter. If you are owed an additional refund, you will receive a check. If you owe an additional payment, you will receive a bill.
How do I know if my tax withholding is correct? ›
How to check withholding. Use the Tax Withholding Estimator on IRS.gov. The Tax Withholding Estimator works for most employees by helping them determine whether they need to give their employer a new Form W-4.
Is it illegal to fill out a w4 wrong? ›
Filling the W-4 form out incorrectly can trigger an IRS penalty for underpayment (TRUE).
What is the most common mistake made on taxes? ›
The No. 1 most common tax mistake by far is to include erroneous information on the return. While inaccurate information certainly can be an act of fraud, most tax return errors are just honest mistakes.
If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax.
How much is underpayment penalty? ›
For corporations who underpay, the IRS adds 2% to the short-term federal funds rate. As of the first quarter of 2024, the interest rate on underpayments is 8% for individuals and 7% for corporations.
How often does the IRS catch tax mistakes? ›
Regardless of whether you're among the "high-income, high-wealth individuals" the IRS is targeting this year, your chances of being audited are still pretty slim: Of the roughly 165 million returns the IRS received in 2022, approximately 626,204, or less than 0.4%, were audited.
Will the IRS let me know if I made a mistake? ›
An IRS notice may alert you to a mistake on your tax return or that it's being audited. You can verify the information that was processed by the IRS by viewing a transcript of the return to compare it to the return you may have signed or approved.
How far back can the IRS audit you? ›
Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.
Can I sue IRS for false claims? ›
Generally, if you fully paid the tax and the IRS denies your tax refund claim, or if the IRS takes no action on the claim within six months, then you may file a refund suit. You can file a suit in a United States District Court or the United States Court of Federal Claims.
What is considered a false claim? ›
A false claim is simply a demand for money or property that is based on a material falsehood or a fraud.
What happens if you get caught lying on your taxes? ›
Lying on your tax returns can result in fines and penalties from the IRS, and can even result in jail time.
