Taxes are complex. There is rarely a simple answer to a tax matter. However, one question often does have a simple answer: do I need to file taxes? Millennials are often struggle with this question. The wrong answer to this, and two other common errors, can cause serious problems.
One big problem to watch out for: becoming the subject of an audit by the Internal Revenue Service (IRS).
Millennials can help reduce the risk of an audit by avoiding these three common mistakes:
- File. There are some misconceptions about when a person needs to file taxes. In most cases, you need to file tax forms if you earned $10,400 or more in 2017. In some cases, even those who earned as little as $6,350 in 2017 will need to file. This is true for those who are still listed as a dependent on another’s tax form — likely a parent’s.
- Income. Report all income when filing taxes. Everything. That side gig with Uber? Report the income. That lottery, raffle or drawing winning? Also considered income. The IRS requires taxpayers report all income. When it comes to prizes and awards, like that raffle winning, the cash value of the won item is generally considered taxable income.
- Location. Where you live matters. In addition to federal tax obligations you also have state tax obligations. If you have moved between states during 2017, you will likely have obligations to each state.
Failing to account for these errors can increase the risk of an audit. If not taken seriously, an audit can lead to serious financial penalties. As such, it is often wise for those who are notified by the IRS that they are the subject of an audit to seek legal counsel.