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Old 04-01-2019, 01:19 PM
TaxMax
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Default Tax Mistake!

My taxes are fairly simple and straight forward so I have been doing them myself, I guess until now. I was reviewing my Turbo Taxes this weekend for final submitting and something caught my eye. Without going into detail I was clicking a box and entering an amount thinking it was a retirement deduction but what I was entering was really not an allowed deduction. Long story short is I have been shorting the IRS over $1000 per year for at least the last 6 years! I know this will get ugly down the road so have already contacted an accounting firm to sort it out to come clean immediately.

Not that I want to hear horror stories but I suspect some on here have run into the same thing or worse over the years. I guess I am curious to know how bad the IRS is going to punish me for my error. What scares me the most is the time involved and how hefty the penalty is going to be. I am kind of baffled that the IRS didn't come to me at all to collect and just let it go, or why they didn't have a way to ding it. Or better yet, why did Turbo Tax not ding it? No way did I intentionally try to fleece them and I want it sorted out asap. But wow! The time involved really frightens me.

Anyway, how bad is it going to get? I really am afraid to come back and see the answers but first hand experience on Walleye Central is usually pretty vivid and accurate many times!
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  #2  
Old 04-01-2019, 11:40 PM
Anonymouse Anonymouse is offline
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Over the course of nearly 40 years Anonymouse has always done his own tax forms & made a tax return error 3 times.
Twice it was stupid math errors & once not declaring settlement money interest as income because an NLRB lawyer said that part of the award was not taxable.
The problem was, in 2002 it wasn't taxable, but in the intervening 7 years it was legislated as taxable, so........

In the interest money case it took a bunch of haggling over the true amount of tax due and Anonymouse ended up legally liable for about 1/3rd of what the IRS initially said was the amount due - but had to pay a small penalty (calculated per month overdue) on top of the interest on that amount as well.

In both math error instances the IRS did not add a penalty, accepting that it was an honest mistake and not an attempt to cheat, but the original shortage was due and so was interest (calculated per day overdue).
In all three cases we're talking months overdue, not up to 6 years - as in your case, TaxMax.
Depending on the amount in question it could get pricey, but there is a limit to penalties and interest, so if the amount owed in question isn't REALLY YUGE, you might feel the burn but you'll survive the heat.

The thingy is, certain thingys trip a red flag almost immediately, (bad math especially), but other thingys, (like deducting a toilet for your home on your business expenses or taking a retirement deduction that wasn't specifically spelled out in detail) wont trip anything unless you are unfortunate enough to be randomly audited.
In your case it sounds like, since the IRS didn't catch it by now, they likely never would have - until you opened yer yap.

You can only be held liable for 7 years from the year of the income or hinky deduction.
After that, the IRS is SoL for taking anything - but, and Anonymouse says this only half in jest, your conscience may have a longer statute of limitations.
Anonymouse always pushed the envelop on deductions for his contracting & rental real estate businesses, but NEVER, EVER, willfully tried to cheat the IRS and gummint out of any taxes rightfully owed.
(Kinda corny but, it's a "citizen's duty" thingy with Anonymouse.)

Having paid in north of $50k in total taxes annually (Fed, State, County, sales, and local property taxes) for a few decades, even Anonymouse's sense of integrity and honor can start to assume a sanctimonious attitude upon discovering an ACCIDENTAL tax mistake and contemplaiting whether to report it retroactively.
It wouldn't be paying the actual taxes & interest on them that would bother Anonymouse, mind you, but the PENALTY being applied for making an honestly accidental error seems to be beyond the pale a bit and would tend too keep his mouth SHUP!!!

The IRS doesn't usually audit folks with small incomes unless they've been caught in something fishy previously.
Audits are expensive and rarely produce enough additional tax revenue to cover the expense of doing one - even on really rich peeps - but the FEAR of an audit is what keeps them doing it, to suppress any funny ideas by peeps who have sketchy incomes to start with.

It was easier to copy this straight from The Motley Fool website than to try and explain it the "Anonymouse Way".
https://www.fool.com/knowledge-center/how-to-calculate-interest-rate-penalties-on-late-t.aspx

How interest is calculated
Out of the two charges you can face, the interest is the more straightforward to calculate.
The IRS interest rate is determined by the Federal short-term rate plus 3%.
Interest is computed on a daily basis, so each day you are late paying your taxes you'll owe an additional 0.0082% of the balance.

Two kinds of penalties
Late penalties can be a bit tougher to calculate, and depend on whether or not you've filed your return.
If you owe the IRS a balance, the penalty is calculated as 0.5% of the amount you owe for each month (or partial month) you're late, up to a maximum of 25%.
And, this late penalty increases to 1% per month if your taxes remain unpaid 10 days after the IRS issues a notice to levy property.
{So pay up as soon as possible, provided the amount is CORRECT - and don't trust the IRS TO get it "correct", because they often don't.}

On the other hand, if you don't file your tax return on time, the penalty is much more severe.
The penalty for failing to file is 5% of the amount you owe per month (or partial month), which combines a 4.5% late filing fee with the 0.5% late payment fee.
Now, the late filing fee also maxes out at 25% of the unpaid balance, but the late payment fee can keep running, up to a combined total of 47.5% of the unpaid tax.

Finally, if you filed your return more than 60 days late, the minimum penalty for failure to file is $135 or 100% of the tax you owe, whichever is smaller.
As you can see, the monthly penalty for not filing your tax return is 10 times higher than the penalty for paying late.
So, if you're unable to pay the amount you owe by the filing date, it's important to file your return anyway.
Also, it's important to mention that penalties and interest can be charged even if you file an extension.
An extension simply moves the filing deadline from April 15 to Oct. 15. However, if you owe taxes for the year, the amount is still due on April 15.
If it's not paid in full by the April 15 deadline, interest and penalties can start accumulating.
(Having filed a couple of times for extensions and NOT having the IRS attach penalties, was kinda nice of them.)

Last edited by Anonymouse; 04-01-2019 at 11:51 PM.
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Old 04-02-2019, 04:05 AM
Bugler Bugler is online now
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Quote:
Originally Posted by TaxMax View Post
My taxes are fairly simple and straight forward so I have been doing them myself, I guess until now. I was reviewing my Turbo Taxes this weekend for final submitting and something caught my eye. Without going into detail I was clicking a box and entering an amount thinking it was a retirement deduction but what I was entering was really not an allowed deduction. Long story short is I have been shorting the IRS over $1000 per year for at least the last 6 years! I know this will get ugly down the road so have already contacted an accounting firm to sort it out to come clean immediately.

Not that I want to hear horror stories but I suspect some on here have run into the same thing or worse over the years. I guess I am curious to know how bad the IRS is going to punish me for my error. What scares me the most is the time involved and how hefty the penalty is going to be. I am kind of baffled that the IRS didn't come to me at all to collect and just let it go, or why they didn't have a way to ding it. Or better yet, why did Turbo Tax not ding it? No way did I intentionally try to fleece them and I want it sorted out asap. But wow! The time involved really frightens me.

Anyway, how bad is it going to get? I really am afraid to come back and see the answers but first-hand experience on Walleye Central is usually pretty vivid and accurate many times!
The statute of limitations is three tax years unless you give the IRS permission to go back further. Don't. Second, you say shorting the IRS $1000 per year but it depends on whether you are talking a credit or a deduction. Personally, I would start doing it correctly this year and let the rest go unless they contact you. Nothing good comes from inviting the IRS into your business especially since this was not an intentional act of deception.
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  #4  
Old 04-02-2019, 05:54 AM
Tax Max
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I wish I could leave a sleeping dog lie but in this case I doubt the IRS would not catch this when I retire and then I get to pay all the back penalties further. I think I should take my lumps and just get it over with.

Basically it had to do with Roth IRA's. Apparently there are different types of Roth's. I saw Roth in the question of do you have one?, checked the box, put in a number. The type of Roth I had was not eligible after reading up on it after I noticed it. And I only noticed it because I recently upped my amount substantially. When I entered it this time Turbo Tax spun like a slot machine. If I let this go I highly suspect I am screwed much worse later.
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Old 04-02-2019, 06:19 AM
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Bobby Winds Bobby Winds is offline
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Since doing my own taxes online we have made 3 tax mistakes 3 years in a row.......now they were honest mistakes and we really didn't owe them any money in the end but if we had........OMG....they want the tax money PLUS interest which was like 6% when the interest paying at the best bank rate was like 1% AND PENALTY.........so you can figure that $1000 mistake will be much closer to $2000 is not more......Grrrrrrrrr

Good Luck, your gonna need it......

Bob
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Old 04-02-2019, 06:39 AM
Ozark Bob Ozark Bob is offline
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Tax max. Take your numbers and forms from the last 6 years and go see an accountant and see what they suggest. I will bet it will save you money in the long run. Don't go to the IRS on your own. Bob
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Old 04-02-2019, 06:59 AM
CKM CKM is offline
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If the irs hasn’t caught it yet they’re not going to. 3 years statute of limitations as stated. I would just stop doing what your doing and letr buck. You can plead stupidity if they question it. But I don’t think they’re going to mess around on something this size and with something with W2 income only.
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Old 04-02-2019, 07:16 AM
grizzley grizzley is online now
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[QUOTE=Tax Max;6306764
Basically it had to do with Roth IRA's. Apparently there are different types of Roth's.

As far as I know, there are different types of IRA's available, but only one is a Roth IRA.
All comes down to either pre tax dollars or after tax dollars being contributed. A regular IRA will be taxed as income upon distribution since no tax was paid on the contribution, a Roth's distributions will be tax free since the tax has already been paid on the money contributed to it.
Not enough info. on what you did, but I would definitely try to get it straightened out, like BW said, the penalties can be substantial.
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Old 04-02-2019, 07:38 AM
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Thunderjet Thunderjet is offline
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Quote:
Originally Posted by CKM View Post
If the irs hasn’t caught it yet they’re not going to. 3 years statute of limitations as stated. I would just stop doing what your doing and letr buck. You can plead stupidity if they question it. But I don’t think they’re going to mess around on something this size and with something with W2 income only.
Exactly. A tax accountant once told me if a deduction is a gray area, deduct it. If you know you made a mistake the prior year, don't worry about it.
His reasoning is you have a very small chance of being audited so take your chances. Most likely what you owe them will not change if they catch the mistake or you tell them about it.
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Old 04-02-2019, 07:52 AM
grizzley grizzley is online now
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Quote:
Originally Posted by CKM View Post
If the irs hasn’t caught it yet they’re not going to. 3 years statute of limitations as stated. I would just stop doing what your doing and letr buck. You can plead stupidity if they question it. But I don’t think they’re going to mess around on something this size and with something with W2 income only.

I would tend to agree if it were just the taxes, but since it involves the IRA it could be a different ballgame! I had to deal with the IRS on a different matter, it was no fun, I ended up getting a congressman to straighten out something that I was 100% correct on, if I wouldn't have had a paper trail that nailed them to the wall I would have been SOOL!
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