IRS Warns Taxpayers to Avoid “Typical Tax Return Errors” in 2021

With 2021’s delayed federal tax deadline of May 17 fast approaching, the Internal Revenue Service (IRS) is warning U.S. taxpayers to be careful when preparing their annual returns. On April 20, the agency issued a News Release advising that taxpayers must, “[s]teer clear of typical tax return errors” in order to avoid unwanted scrutiny. Here, US International Tax Advisors shares his insights on what taxpayers should do to protect themselves.

1. Following the IRS’ Guidance

In its News Release, the IRS provides guidance on some of the steps taxpayers can take to avoid “typical” errors on their returns. Some examples of the IRS’s tips include:

• Use e-filing applications to minimize the risk of mistakes
• Report all taxable income
• Make sure you select the right filing status
• Correctly answer the new virtual currency question
• Sign and date your returns

Mistakes such as omitting information or supplying inaccurate information (which the IRS can verify through other sources) will commonly lead to IRS audits and investigations.  

2. Carefully Addressing Special Circumstances

There are various special circumstances that can trigger additional filing obligations for U.S. taxpayers. For example, individuals and businesses that received economic relief as a result of the COVID-19 pandemic will need to be careful to ensure that they accurately report their federal income tax obligations on their returns. Other examples of special circumstances that require particular attention at tax time include:

• Holding money in offshore accounts
• Holding other foreign financial assets
• Investing in cryptocurrency

3. Addressing Errors on Last Year’s Return

When preparing this year’s tax returns, you may realize that you made mistakes in last year’s filing. If this happens, you should not simply ignore the issue, nor should you make a “quiet disclosure” by attempting to correct the issue in your standard annual filing. Depending on the nature of the issue, you may need to submit an amendment, or you may need to utilize the IRS’ streamlined filing compliance procedures or voluntary disclosure practice (VDP).

4. Verifying All Information on This Year’s Return

As a U.S. taxpayer, it is up to you to make sure your federal income tax return is accurate. This is true whether you prepare your return yourself, use e-filing software or hire a tax preparer. Before you file, carefully review your return; and, if you have any questions about what you need to report or what you need to pay, do not leave them unanswered.

5. Keeping Documentation on Hand to Substantiate Returns

In the event that the IRS decides to audit your return, you will need to have documentation on hand to substantiate what you reported. Since you should have gathered this information when preparing your taxes, you can simply keep it in a file with a copy of your return.

Contact US International Tax Advisors

US International Tax Advisors represents individuals and businesses in all IRS-related matters. If you need help with a complicated tax issue, or if the IRS is auditing your returns, you can call 844-796-8565 or contact us online to schedule a confidential consultation.