When you filed your tax return back in April, you probably figured you were done with IRS matters for the year. But if anything on your return raised a red flag, now's the time when you might receive a letter from the IRS alerting you to a potential problem.
Your first inclination upon hearing from the IRS might be to panic. But rather than stress yourself out needlessly, here's what you should do instead.
1. Read the letter carefully
Most of the time, if the IRS has a problem with your tax return, it's due to a specific issue. Maybe you transposed some numbers on your return that resulted in an error.
For example, say you received a 1099 form stating you collected $2,430 in income from a given company last year. If you accidentally reported that income as $2,340, your taxable income will be $90 shy, so the IRS might send a letter along those lines since it receives copies of all 1099 forms. In that case, all you'd need to do is agree to that change, pay whatever small tax amount it results in, and move on with your life.
Generally speaking, when you get a letter from the IRS, it will contain specific instructions as to what the agency is looking for or what action you need to take. As long as you take the time to understand what's being asked of you, you'll probably come to find that it's a fairly simple matter.
2. Dig up and review your tax return
Whether you filed your taxes yourself this year or with the help of a professional, you should have a copy of your return somewhere. Dig it up and review it so you know how to properly respond to the letter you received. For example, you might get a letter from the IRS suggesting an amendment to your tax return, but that's not the sort of thing you'll want to agree to before reviewing the tax forms you submitted.
3. Respond in a timely fashion
If the IRS is proposing a change to your tax return that you agree with, you generally don't need to reply unless the result is that you owe more money. If that's the case, there will typically be a portion of the letter that you'll sign and remit along with your tax payment. If you can't pay the full amount the IRS is asking for but agree that the agency is due that amount, you can request a payment plan and submit what you owe in installments.
If you don't agree with what the IRS is proposing in its letter, you'll need to respond quickly stating your case. Your response should include supporting details or documentation that defend your initial tax return.
4. Contact the IRS -- or your tax preparer -- if you need more information
Most of the time, you can tackle an IRS letter without calling the agency for further information. But if you're confused as to how to respond, you can always call the IRS directly for assistance. You may need to wait on hold for a while, but once you reach an agent, that person should be able to help.
Along these lines, if you used a tax preparer to file your return, it pays to consult that person and get advice on how to respond to your letter. Your tax preparer might even tackle that response for you, depending on the nature of the issue at hand.
Getting an IRS letter can be pretty unnerving, but there's no need to lose your cool the second you find one in your mailbox. In many cases, the issue you're looking at will be minor in nature and fixable without penalties. You might even get a notice saying you overstated your income and therefore paid more taxes than necessary.
Either way, just follow the above instructions and do what that letter tells you to do. With any luck, you'll resolve the issue quickly and go on to enjoy the rest of your summer.