Solutions to 5 Common Tax Season Problems
You had every intention of filing your tax return before 11:59 P.M. on April 15, and you were chugging along nicely to meet that goal -- until you hit a roadblock. Maybe you realized you never received a crucial document in the mail, or you misplaced some receipts necessary to back up that big write-off you were counting on.
Sound familiar? You're not alone -- or doomed to miss the deadline. "Confusing tax-time problems are quite common," says Andrew Poulos, an enrolled agent and principal with Poulos Accounting & Consulting, Inc., in Atlanta. "And while they may seem daunting at first, most issues can be easily fixed-if you know what steps to take."
To help you navigate the season's trickiest head scratchers, we're laying out five common tax problems -- plus Poulos' quick tips for putting you back on track faster than you can cash your refund check.
1. There's a Mistake on Your W-2
If your W-2 -- the federal form issued by your employer that indicates how much you've earned and paid in taxes for the year -- reports the wrong amount of income, the Internal Revenue Service could slap you with an inflated tax bill.
As soon as you realize there's an error, immediately contact your employer and ask for a corrected form. Typically, it will do so quickly, as it's in its best interest to accurately report the full amount it has paid in taxes for each employee. "But if they don't, call the IRS. and file a complaint," Poulos says, adding that it'll then contact your employer asking for the correction on your behalf.
Unfortunately, this process can take several months, so you may need to file an extension -- but the good news is that the IRS will have records showing that you're working toward a resolution.
2. Your Former Employer Went Out of Business
If you haven't received a W-2 and therefore can't prove that your employer paid taxes for you because they've shuttered, it's possible that the IRS could bill you for a year's worth of back taxes -- plus interest and other penalties.
If your previous company went under before issuing you a W-2, you can file a substitute wage statement, known as the Form 4852, using information from your last pay stub to complete the document. Can't find your last paycheck? Then estimate your numbers -- but very carefully. "You'll have to substantiate your figures on Form 4852 should you ever get audited by the IRS," Poulos says. "That's why it's so important to use the most accurate figures possible."
3. You Didn't Receive a 1099
Unlike full-time employees with W-2s, independent contractors are typically on their own when it comes to reporting their income and paying taxes. So it's crucial to keep track of the 1099's issued by clients in order to back up your income claims.
If a company fails to send you a 1099, Poulos says it's not the end of the world. "Because there are no withholdings reflected on the 1099, your own records of income are enough to file your tax return," he explains. That said, be vigilant about keeping records of client invoices, deposit receipts and bank statements -- all of which can be used to compute your income and tax liability without a 1099.
4. You're Missing Substantiating Documentation for a Deduction
If you choose to itemize your deductions, you'll need receipts or other supporting documents to prove how much you spent. Otherwise, the IRS could disallow your deduction -- potentially costing you more money in taxes and penalties. "If you're just missing a few records or receipts, you're probably OK," Poulos says -- as long as you can come up with other ways to back up your right to a deduction.
For instance, if you want to deduct business travel, but failed to keep a detailed log of how many miles you drove to visit clients, Poulos suggests trying to re-create an accurate account using gas station receipts.
If you know how many miles you get to the gallon, then you can tally up how far you drove based on the number of times you filled up at the pump. Just be sure to deduct your personal use from the total mileage. For other types of business deductions -- like hotel stays or client meals -- where you don't have actual purchase receipts, a credit card or bank statement may do the trick.
5. You're Confused How to Prove You Had Health Insurance
For the first time in 2014, all taxpayers must prove they have health insurance to avoid paying federal penalties. If you bought a policy on the exchange, you'll receive Form 1095-A as supporting documentation. But if you have private insurance -- both taken out for yourself or provided through an employer -- it's a little trickier.
"The IRS has not given us specific instructions about what types of documentation to provide to show health insurance coverage," Poulos says. "And that can be confusing." For now, Poulos says he's advising clients to offer up as much information as possible. That could include copies of your insurance card, billing statements from your insurance provider, or your final pay stub, showing how much was deducted from your paycheck for premiums.