No one wants to be on the IRS naughty list or have any issues with the IRS. Over the course of our lives we learn a few practices to help us avoid problems or at least reduce how bad a problem may become. For example, I refill my gas tank when it reaches ¼ of a tank to make sure I don’t end up running out of gas. That is one of my best practices for cars. Here is my list of seven best practices to avoid problems with the IRS and taxes:
- Keep your address updated with the IRS. I put this one first for a reason. Too many times I have a taxpayer come to me with an IRS letter that is the second or third one that was sent. Or even later ones. And I am told that the taxpayer didn’t receive the previous ones. It is a best practice to deal with IRS issues sooner rather than later. So if you move between filing tax returns you should update the IRS on your change of address. Mail forwarding cannot be relied on to forward mail from the IRS.
- File tax returns on time all the time. If you can’t make it on time then file for an extension, using Form 4868.
- Make sure your tax withholding or estimated tax payments are accurate. You can use the W-4 tax withholding estimator for tax withholding. Some IRS guidance on calculating estimated tax payments can be found here. Check on tax withholding when your income changes or when your tax situation changes.
- File your tax return using ALL of your tax documents. Make sure you know what tax documents you are expecting to receive and that you received them before filing your tax return. Frequent job changes can result in a missed W-2 form. If you receive subsidized healthcare insurance through the marketplace you will need your 1095-A Form when filing your tax return. If you had debt forgiven or cancelled you may be sent Form 1099-C Cancellation of Debt. In some cases cancelled debt is considered taxable income. Remember, if you are sent a tax form, then the IRS is sent the same form. They don’t always get the form as quickly as you do, which is why in many cases a tax return is accepted when you haven’t included all the applicable information.
- Be Right, Don’t Guess. If you have any uncertainty about your answers to software or entries into tax forms, make the effort to ensure you are doing the right thing. You can do this by asking for help within the software. You can also read IRS tax topics, use the IRS Interactive Tax Assistant, and read IRS publications and instructions.
- Electronically File Your Tax Return if at all possible. The IRS says this is the most efficient way to file and the quickest way to get the tax return processed. And you don’t have to worry about mail problems if you electronically file.
- Use Certified Mail for Correspondence to the IRS when possible. The difference between knowing the IRS received what you sent them and not knowing can be the difference between having some peace of mind and having none. Having the proof can also be helpful in avoiding additional penalties or actions taken against you if the IRS states they never received a document.
This list was written using the tears of taxpayers. Okay, maybe I’m no Shakespeare, but I do want to emphasize that these best practices will help you avoid problems and issues that other taxpayers have had. Use them.