Why You Need a Professional to Help You Claim Tax Credits
The U.S. Treasury recently issued a report that said that millions of dollars of tax credits have been issued to people who had no right to claim them. The report found that about 7 percent of the taxpayers claiming the Alternative Motor Vehicle Tax Credit, were not filing a claim for qualified electric vehicles.
We wrote a post in June about the Alternative Motor Vehicle Tax Credit and talked about what vehicles do and do not qualify for the credit. You can find it here.
The end result was the IRS discovered it was out about $74 million in unpaid taxes and that didn’t sit well with the agency.
Mistakes happen and if you’re filing your taxes yourself or claiming tax credits yourself, you may end up claiming something that you don’t qualify for. It happens. But what happens after that?
What Happens If You Claim a Tax Credit Incorrectly?
The IRS doesn’t like letting money go. The minute it discovers that you’ve claimed something that you do not qualify for, it’s going to contact you.
The IRS website has an article on how it will contact you and how you can keep yourself protected from potential scams, but here are the basics:
- The agency will never reach out via email, social media or text message;
- If you get a phone call, do not give out information over the phone and call the agent back through the IRS’s 800-number;
- If an agent visits you in person ask for two forms of identification before you discuss your taxes.
Will I Owe Money?
If the IRS determines that you’ve claimed a tax credit incorrectly you will owe money. If you paid $1,000 in taxes in 2016 and the IRS discovers that you did not qualify for a $300 tax credit that you claimed, then you would owe a $300 tax credit to the IRS, plus any fees.
Will I Pay a Penalty for Claiming a Tax Credit Incorrectly?
The IRS can be an unforgiving entity so yes there will likely be a penalty attached to the request for payment of taxes owed. The amount of the penalty will depend on three variables, how long it’s been since the tax return was originally filed, how much money is owed to the IRS, and what kind of mistake you made in the initial tax return.
If you would like to see how the IRS calculates its fees, there’s an article here.
What if I File an Amended Tax Return First?
Even if you take the initiative and file an amended tax return, the IRS is still going to want its money and it will likely still charge you the penalty. Filing an amended tax return is appreciated, but serves no financial benefit except possibly preventing further fees down the road.
What Can I Do to Protect Myself?
The best thing you can do to protect yourself is to hire a professional. You want a CPA doing your taxes and you want a tax credit specialist to make sure you’re filing the right forms, crossing all your T’s and dotting all your I’s with the IRS.
If you’d like to know the specific difference between a CPA and a tax credit specialist, read this previous blog post.
Disclaimer: As with all the posts on this blog, this is just a general outline of what can happen and is certainly not specific to your case. If you have any tax questions, you should always consult your accountant or CPA. Tax Credit Group is also here to help.
