Got an IRS Letter? Here's What to Do…
Have you ever opened your mailbox to find an official-looking envelope from the IRS? I know, it can send a wave of panic through even the most seasoned entrepreneurs. But don't let that initial anxiety get the best of you! Receiving an IRS letter isn't the doomsday scenario it's often made out to be.
In today's blog, we're going to delve into the world of IRS notices, specifically from the perspective of ecommerce business owners who file a 1040 as a pass-through entity. We'll go over the different types of notices you might encounter, what they mean, and most importantly, what to do when you receive one. So buckle up, grab a calming beverage (may I suggest some herbal tea?), and let's demystify IRS letters together. Trust me, by the end of this, you'll feel much more at ease should that ominous envelope ever grace your mailbox.
IRS Notices: What Are They?
The IRS issues notices to communicate with taxpayers about their tax accounts, bills, enforcement actions, and to explain any adjustments the IRS has made. IRS notices aren't always bad news; sometimes, they're just providing information or seeking additional details. What you should never do, however, is ignore them.
Common IRS Notices for Ecommerce Business Owners
While there are hundreds of different IRS notices, as an ecommerce business owner, there are a few you're most likely to encounter:
Eight Common IRS Notices
CP01: Notices Related to Identity Theft: The IRS will send this notice if they have reason to believe your identity may have been stolen and misused on tax documents.
CP14: Balance Due: This notice is a bill for taxes due. If you've underpaid your taxes, the IRS will send you this notice to collect the remaining amount.
CP59: No Tax Return Filed: This is sent when the IRS has no record of receiving a current year tax return from you. If you've forgotten to file or your return was lost in transit, you'll get a CP59 notice.
CP2000: Underreported Income Notice: If the IRS believes you didn't report all of your income, you'll receive a CP2000. This is common for ecommerce business owners due to income from multiple sources, like eBay, Amazon, or direct sales from your website.
CP2501: Notice of Proposed Adjustment for Underpayment/Overpayment: This is sent when the information the IRS has on file doesn't match your tax return, and the discrepancy could lead to an underpayment or overpayment of your taxes.
CP261: Notice of Cancellation of EIN: If you've requested to close your business account and the IRS agrees, they'll send this notice to confirm the cancellation of your EIN.
CP501: First Reminder of Balance Due: If you've missed your first payment, the IRS will send you this notice to remind you about your unpaid balance.
Letter 531: Notice of Deficiency: This notice arrives when the IRS proposes a tax assessment because they believe you owe additional tax.
So, You've Received an IRS Notice - What Next?
First things first - don't panic! A notice doesn't mean you're in trouble. It's a chance to ensure you're compliant and make things right if there's an issue. Here are your next steps:
Read and Understand: Carefully read through the entire notice. Look for the reason for the notice, its details, and any action steps that the IRS expects from you.
Verify Authenticity: There have been many instances of tax scams. Make sure your notice is legit by verifying it on the IRS's official website or calling the IRS directly (never use the phone number provided on a suspicious notice).
Consult a Tax Professional: If the notice involves underreported income, a substantial amount of money, or if you disagree with the notice, it's a good idea to get a tax professional involved. They can help you respond appropriately and represent you if needed.
Reply Promptly: Don't ignore the notice. The IRS usually gives taxpayers 30 to 90 days to respond. If you don't, they'll continue their collection process which can include penalties and interest.
Keep a Copy: File your notice away with your other tax documents. This helps you maintain a full record of your tax history.
Remember, getting a notice from the IRS isn't the end of the world, nor is it a reason for panic. It's important to respond promptly, consult with a tax professional when needed, and keep a record of all correspondence. And as always, keep meticulous records for your ecommerce business, which will make dealing with any notice far easier.
Hope you found this guide helpful. Remember, you're not alone in your journey. When in doubt, reach out for professional help, and continue to stay tax-compliant in your ecommerce business!
Stay tuned for more tax tips and tricks on our next blog post. Until then, happy ecommerce-ing!
Disclaimer: The content on this blog is for informational purposes only and does not constitute professional financial advice. While I am an accountant and tax professional, the information here should not be relied upon without seeking advice from a professional tailored to your individual circumstances. I disclaim any liability for actions taken based on the content of this blog.
