Filing your income taxes can be easy or it can be extremely complicated. For most people, it causes so much stress that they will pay for tax preparation services so they don't have to do their own taxes at all. Whether you do your own taxes or have someone else do them for you, there is always the potential to make a mistake. Unfortunately, making mistakes doesn't sit very well with the IRS. Here are three things that can happen if your taxes aren't prepared correctly.
1. The dreaded audit.
The tax audit can be one of the most stressful things a person goes through. In a lot of cases, it can be avoided. For instance, some people get flagged for an audit simply because they made a math error or entered a wrong number in one of the boxes. However, sometimes, you will be flagged for a tax audit just because you are wealthy or try to write off a sizable portion of your income as contributions to charity.
No matter what the reason is for your tax audit, it is usually the first step in determining if your return was prepared correctly. If it was, then you can rest easy that it is over and you don't owe more money to the IRS. If your return was incorrect, the audit can either find you are due a refund or, as in most cases, that you owe more taxes to the IRS than you initially thought.
2. Your unpaid taxes incur penalties and interest.
If you are found to owe more taxes to the IRS than your original return stated, you will not just have to pay the additional tax - you will also incur a late penalty on the amount of the underpayment and have to pay interest. The IRS charges you a penalty of 0.5% of the unpaid tax amount each month it has gone unpaid after the due date. The total penalty will never exceed 25%. As for the interest rate for unpaid portions of your tax bill, it is currently at an annual rate of 3% that is added to your unpaid balance yearly.
3. Various ways for the IRS to get their money from you.
If the amount you owe the IRS is too large for you to pay in one payment, they will offer to work with you on a payment plan. However, if you fail to make your payments, or just refuse to work with the IRS at all, they can get their money from you in other ways.
One of the most well-known ways is to garnish your wages. The law tells the IRS how much they have to leave you
Not only will the IRS garnish your wages, but they can also take your assets, including your home, freeze your bank accounts, and take your future tax refunds to pay your unpaid tax bill. As you can see, not having your tax return prepared correctly can have serious ramifications