It\'s a common belief among taxpayers that if you receive a tax form in the mail, such as an interest -earned statement, you should copy the information contained straight into the tax return you file. However, if you do this, you could end up paying money you didn\'t owe or get audited if the forms are inaccurate.

Understand the Consequences
Why do you need to check over your forms for accuracy? To avoid these potential consequences:

o Audits. If a number is way off, such as $12,000 paid in student loan interest when you really paid $4,000, the number could trigger an audit. While an audit doesn\'t always mean that an official IRS representative will show up at your doorstep, why tempt the IRS if it\'s not needed?

o Tax penalties if the tax form is incorrect. If your tax return shows you owe more than $1,000, you could owe a penalty. The penalty could get worse if you wait to pay the amount owed. How much could this penalty be? For 2009, the penalty rate was 4% of your unpaid taxes owed based on the number of days the balance was outstanding. The actual calculation of the penalty is a bit complex, but rest assured that the IRS will calculate it for you - and send you the bill.

o Less or more tax money owed. You may have been eligible for a huge tax refund. However, you might not know this if you are inputting the wrong information on your tax return. For instance, let\'s say your taxes showed you had a capital gain of $5,000. You‘d likely have to pay 15% tax on this amount for a total of $750. However, suppose it turned out it was a typo, and you actually lost $5,000. If your marginal tax rate is 25% you would be able to deduct $3,000 from taxable income, and you could see a refund on this amount for $750 – with the remaining $2,000 loss carried forward to the next year. Reporting the same number as positive instead of negative could cost you $2,000!

Isn\'t the institution, such as a bank or investment company, liable for the misinformation? The institution you work with isn\'t liable for the inaccurate reporting. Ultimately, only you are liable for what you report to the IRS. You need to request corrected forms as soon as you notice an error. Here\'s how to avoid these problems.

Obey Your Instincts

If you see a number that doesn\'t make sense, you need to check to see if it\'s wrong. For instance, if you invested around $10,000 and it shows you invested $30,000, you know the form you received is inaccurate – even if you don\'t know by exactly how much. Investigate further and don\'t file until you get an accurate form.

Gather Past Records from the Form Provider
This could be investment account statements, bank statements or income statements. You might have paper copies handy, but you can generally order past statements from your form provider or view them online.

You will need either yearly summaries of your accounts that you suspect have missing information, or the monthly or quarterly statements.

Call For Corrected Forms
If you view your statements and you are still unsure about accuracy, have your form provider go over the information with you. You may find what you thought was a mistake was right all along, or the representative will realize during your conversation that there is an inaccuracy. Then you can request a corrected form.

Call the IRS for Help
If you can\'t get a corrected form from the institution that generated it, the IRS will help you get the information you need to file your taxes. Call the Live Telephone Assistance Line for Individuals at 800-829-1040 from 7am to 10pm.

Never file your tax return with information based on an incorrect form. You could incur tax penalties, spur an audit or even miss out on a refund. Scan every tax form you receive in the mail to make sure it looks accurate. If you suspect any inaccuracies, go through previous account statements. If you still have suspicions, call the institution which sent you the form and have them go over your account information with you. Have the representative send you a corrected form if inaccuracies are confirmed. If you can\'t get in touch with your form provider or they won\'t send you a new, corrected form, call the IRS help line.

Correcting a tax form can be a lot of work, but it\'s much better to find and fix the mistakes yourself - before the IRS notices the errorr. (For further reading, check out 6 Sources For Free Tax Help, Receiving an Unexpected Form 1099-R, Inaccurate Tax Return, Now What? and Should You File An Early Tax Return?.)

Related Articles
  1. Tax Strategy

    Profit from Art with a Charitable Remainder Trust

    With a CRUT, art collectors can avoid capital gains taxes on the sale of art– while also leaving their favorite charity a legacy.
  2. Taxes

    Free 2016 Tax Preparation! Top Online Services

    A place that fills out and files your taxes free of charge? It's no myth, as long as you have a simple return. Read on to find the top preparers.
  3. Taxes

    Why People Renounce Their U.S Citizenship

    This year, the highest number of Americans ever took the irrevocable step of giving up their citizenship. Here's why.
  4. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
  5. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  6. Taxes

    Taxes: H&R Block Vs. TurboTax Vs. Jackson Hewitt

    There are more and more tax services to help ease the pain of filing income taxes. Here's our take on three of the biggest.
  7. Taxes

    Confused About Estimated Tax Deadlines for 2016?

    If you run a business or have investment income, pay attention to this year's estimated tax deadlines. Here are the details, and what's new for 2016.
  8. Retirement

    Retirement Plan Tax Prep Checklist

    Here's a list of items you need to have in order by tax time, including paying attention to those pesky required minimum distributions.
  9. Investing Basics

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
  10. Professionals

    A Day In The Life Of A Public Accountant

    Here's an inside look at the workdays of two experienced CPAs, to give you an idea of what it might be like to pursue a career as a public accountant.
  1. When should my tax refund arrive?

    More than 90% of income-tax refunds arrive in less than three weeks, according to the Internal Revenue Service (IRS). However, ... Read Full Answer >>
  2. How do I file taxes for income from foreign sources?

    If you are a U.S. citizen or resident alien, your income (except for amounts exempt under federal law), including that which ... Read Full Answer >>
  3. Are Flexible Spending Account (FSA) items tax deductible?

    Flexible Spending Accounts (FSAs) are employer-sponsored, tax-favored savings plans expressly for the future reimbursement ... Read Full Answer >>
  4. How Long Should I Keep My Tax Records?

    The Internal Revenue Service (IRS) has some hard and fast rules regarding how long taxpayers should keep their tax records. As ... Read Full Answer >>
  5. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
  6. Do 401k contributions reduce AGI and/or MAGI?

    Traditional 401(k) contributions effectively reduce both adjusted gross income (AGI) and modified adjusted gross income (MAGI). ... Read Full Answer >>
Trading Center