Top Reasons Why You Can Get An Income Tax Notice

Whether it's time to pay your taxes or you're expecting a refund, getting your income tax notice can be intimidating for many. Unfortunately, it can lead to problems if not done properly - receiving an income tax notice from the IRS is never fun.

Knowing why they may occur and how to deal with them will help ensure you don't owe more than necessary at the end of April 15th. We will take an in-depth look at why you can get an income tax notice so that you will know exactly what to do when the time comes.

Reasons Why You Can Get An Income Tax Notice

Filing status errors

If you need to remember to update your filing status, such as changing from single to married or vice versa, it can cause problems with the amount of taxes owed and result in an income tax notice from the IRS.

Math errors

A simple addition error on your taxes can become a big problem if not caught before submitting. This results in discrepancies that will be noticed by the IRS and lead to an income tax notice being issued.

Unreported income

If you have earned money during the tax year but have yet to report it, this will also show up as a discrepancy when the IRS verifies data collected via W-2 forms or 1099s filed by employers/clients.

For delayed filing, I-T return

If you have missed the tax filing deadline, this can also result in an income tax notice. The IRS might even impose a fine and penalty for late filing of I-T returns. However, you can get an extension for filing your taxes in the form of a six-month grace period. This will give you more time to ensure all your paperwork is in order and submit the tax return without delays.

If you cannot file your I-T returns on time, contact the IRS and explain why. As long as they understand your situation, they may waive any penalties for late filing. Knowing how to handle a delay in filing an I-T return is important before it creates bigger problems with fines and notices from the IRS.

Misreporting LTCG from equity

Refraining from overreporting long-term capital gains (LTCG) from equity investments can be costly. When investors fail to accurately disclose their profits on their equity investments, they are essentially cheating themselves out of money that could have been saved had it been reported properly.

This not only affects their bottom line but also impacts their overall financial health as well. As such, it is important to always be honest and accurate when reporting LTCG from equity investments to avoid any penalties and legal ramifications associated with misreporting.

Additionally, taxpayers should understand all relevant tax laws and regulations about LTCG so they do not under or overpay taxes on these transactions.

For TDS claim not matching with Form 26AS

When an individual files their income tax return, the total tax deducted at source (TDS) claimed should match the details in Form 26AS. If they do not match, it can be a reason for getting an income tax notice from the IT department.

This is because any discrepancy between TDS and Form 26AS indicates that there has been a mistake while filing taxes or some amount of money has been deliberately prevented from taxing.

To avoid this situation, taxpayers must cross-check their TDS entries and ensure all relevant documents are included while filing taxes. If an individual receives an income tax notice due to discrepancies between TDS and Form 26AS, they must provide proof of payment of taxes along with the required documents to the IT department.

It is important to note that any mismatch in TDS and Form 26AS should be rectified immediately, both for the individual’s records and to avoid penalties from the IT department.

For non-disclosure of income

Non-disclosure of income is never a good idea. It is illegal to disclose false or incomplete information on tax forms, and it can lead to severe consequences if the Internal Revenue Service (IRS) discovers it. Taxpayers may face fines, interest payments, and even criminal prosecution, depending on how much money was underreported.

Non-disclosing income could also impact someone’s credit score if they don’t pay their taxes in full and on time. The best option for taxpayers is always to be honest about all income sources when filing their taxes, as it avoids potential issues.

For not declaring investments made in the name of the spouse

When filing taxes, it is important to include investments made in the name of a spouse or dependent. Failing to do so can result in an income tax notice from the IRS, as they might consider this an attempt at avoiding payment of taxes.

To avoid this situation, married couples should always disclose investments made in their spouse’s name and any gains earned while filing their taxes. Taxpayers must also declare any investments and income earned by their dependents when filing returns.

This helps ensure that all payments are calculated accurately and that no discrepancies arise from incorrect data entry.

For filing the defective return

A defective return only includes some of the required information or contains discrepancies, resulting in an incomplete return. Filing a defective return can result in an income tax notice from the IRS.

To avoid this situation, taxpayers should ensure their returns are accurate and complete before submitting them. If they need help filing their taxes, they should seek professional advice to ensure everything is done correctly and everything is correct.

If you have done high-value transactions

If you have done high-value transactions throughout the year, it is important to declare them when filing your taxes. Please do so to avoid an income tax notice from the IRS, as they will notice these transactions during their audit process.

When filing taxes, it is always best, to be honest about large and small transactions. This helps ensure that all payments are accurately calculated and everything is fine with correct data entry and discrepancies.

If your return is picked for scrutiny

If your return is picked for scrutiny, it may result in an income tax notice from the IT department. To ensure accuracy, the scrutiny process thoroughly examines all documents and records submitted while filing taxes.

This could involve the taxpayer being asked to explain the source of high-value transactions or discrepancies between TDS and Form 26AS details. Taxpayers must be prepared to provide any relevant information requested by the IT department during the audit process.

FAQS

Why would you want to file a tax return?

Filing a tax return is important because it helps ensure that an individual pays the correct taxes to the government. It also allows individuals to receive refunds due to tax payments or deductions. Furthermore, filing taxes can help protect an individual’s financial health by preventing them from owing more money to the IRS if they were underpaid in a previous year.

What is the minimum income to file taxes in 2023?

The minimum income to file taxes in 2023 is $12,400 for individuals and $24,800 for married couples filing jointly. Self-employed individuals must file a tax return if their net earnings from self-employment are at least $400.

Why does it say I owe taxes?

If you owe taxes, it could be because of an error in your tax return filing, a miscalculation of deductions or credits, or more income than what was declared. It is important to double-check all information before submitting a return to ensure accuracy and avoid owing money at the end of the year.

Conclusion

Knowing why one might get an Income Tax Notice. Although you can't predict with absolute certainty when and why you'll receive a notice, you can do your best to avoid this situation by exercising caution and taking the right steps. For instance, review your return before filing. This will help ensure all required items are included and that information is correct.