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Financial Symmetry: Balancing Today with Retirement

When considering retirement, do you wonder what financial opportunities you may be missing? Busy lives take over and years pass without taking advantage. In this retirement podcast, Chad Smith and Mike Eklund unveil financial opportunities, to help you balance enjoying today so you are ready to retire later. By day, they are fiduciary fee-only financial advisors who answer questions about tax savings, investment decisions, and how to save more. If you’ve been putting off your financial to-do list or are just not sure what you’ve been missing, subscribe to the show and learn more at www.financialsymmetry.com. Financial Symmetry is a Raleigh Financial Advisor. Proudly serving clients in the Triangle of North Carolina for over 20 years.
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Now displaying: Category: Taxes
Oct 7, 2019

Every year there are approximately 140 million tax returns filed with the IRS and of those, 4 million will receive an IRS letter stating that there is a discrepancy. Your first instinct might be to panic, but don’t overreact. Grayson Blayzek is here to help us understand what you can do if you receive the dreaded CP2000. You’ll want to listen in not only if you have received a letter, but also to learn what you can do to prevent receiving one in the first place.

Short Youtube video recap here: https://bit.ly/2NBiVkm 

You can take a proactive approach or a reactive approach to receiving an IRS letter

There are 2 different approaches when dealing with an IRS letter. You can take a proactive approach or a reactive approach. The reactive approach happens after you receive the letter, but a proactive approach helps you get in front of any tax confusion and reduce the chances that you will receive a letter. Here’s what you can do to take the proactive approach. 

  1. Keep accurate and complete tax records, including W2’s, 1099’s, and investment documents. 
  2. Make sure you receive all the tax information before you submit your tax return. Be patient as you go through the filing process.
  3. Check your records as they come through. Make sure the information looks accurate.
  4. Include all of your income. Make sure you don’t underreport any income
  5. Follow the instructions when you fill out the 1040 and fill it out completely and accurately. 

How can you amend your tax return? 

The first step to amending your tax return is to realize where your mistake was. Did you transpose a number? Did you receive a tax document after your return? A tax professional can help you look at your return and find the problem. Sometimes a backdoor Roth strategy is the culprit in a tax return error. Funds that were converted to IRA’s might get reported on the tax return when they shouldn’t. The process of filing an amended tax return is similar to filing an original return. But instead of filing a 1040, you’ll file a 1040X. 

What should you do if you do receive the dreaded IRS letter?

If you do receive a letter from the IRS it will come via snail mail. They will never email you, text you, or send you any other type of message. The letter you will probably receive is a CP2000. 4 million taxpayers receive a CP2000 each year. Basically this form is stating that something in your tax return doesn’t match the IRS records. It isn’t a bill, but do realize the burden of proof is on you to correct the error. Here’s what to do if you receive the CP2000:

  1. Review the letter and determine what the IRS is saying and make a note of the response date. 
  2. You typically have 30 days to respond. If you don’t respond to the 30-day letter they will issue a notice of deficiency or 90 day letter. At this point, you’ll have fewer rights to appeal, so it’s very important to respond to the first letter in a timely manner.
  3. You can agree or disagree with the letter. If you agree, then complete the response form, send in the taxes due and you’re done.
  4. If you disagree you’ll need to gather the relevant information and mail it to the IRS. 
  5. After you have responded to the notice it will typically take 6-12 weeks before you get a response. 

Don't overreact

Taxpayers spend the first 3-4 months of the year gathering documents and working through the tax filing process so it can be frustrating to receive an IRS letter stating that there is a discrepancy. But make sure that you don’t ignore it. Read it carefully and don’t overreact. Take time to digest the information to get a clear understanding of what the IRS is proposing. Get tax advice if you need it. No one likes paying taxes but it is a function of our society. Annual tax planning can reduce your tax burden but we still have to pay the appropriate level of tax fro our level of income. Maintaining appropriate tax records is a great way to avoid a tax notice from the IRS.

Outline of This Episode

  • [1:40] Every year there are approximately 140 million tax returns are filed with the IRS
  • [3:22] What should you do if you get a letter?
  • [8:40] How do you amend your tax return?
  • [12:54] All information you receive from the IRS will be through the mail
  • [15:30] What steps should you take if you receive a CP2000?

Resources & People Mentioned

Connect with Grayson Blazek

Connect With Chad and Mike

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