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Making More Money While Spending Less

After carefully evaluating my financial situation, I could tell that some things needed to change. It seemed like I was constantly letting my checking account run dry, and it was really frustrating for me. I wanted to live without constantly worrying about finances, so I took a good hard look at how I was spending my money. That simple decision completely changed my life. Within about three months, I finally felt like I had a handle on things. This blog is all about making more money while spending less, and learning the budgeting skills you need to have a better life.

What To Do If You Get The IRS' "CP23" Letter (Hint: Don't Panic!)

Receiving a letter from the IRS gives most taxpayers a feeling of dread, worry or anxiety. But not all letters are created equal. For many taxpayers, the most common letter received is called a CP23 notice. It's a computer-generated letter that can be quite confusing but is not as scary as it may look. Here is a handy guide to what to do when you receive a CP23 letter.

What is the CP23?

Although sometimes referred to as an "audit," a CP23 letter is just an indication that the IRS' computers found an error (a "discrepancy") in your return. It's often received within a month or two after a taxpayer files their return (although it can take months or even a year or more to receive one) and indicates that the IRS has made its own changes to the return. This is usually done for one of several simple reasons:

  • The IRS' records of income differ from what was filled out on the Form 1040 (such as W-2 or Form 1099 income you didn't include).
  • Math errors were made on your return (less likely in the age of electronic filing).
  • Estimated payments were noted on the return that are not in the IRS' records.
  • Credits were taken for which you were not eligible.
  • You failed to declare an early distribution of a retirement account. 

What Do You Do Now?

If you get a CP23 letter, first read it carefully to determine why the IRS made changes to your tax return. Information is provided in the body of the letter (which can be several pages long) to show what your calculations were and what the IRS changed. If the change was made due to undeclared income, record of the payer (the employer, brokerage firm or contractor) is usually also given. If you still are not able to determine why the changes were made, it may be best to consult with a qualified tax preparer or accountant to help sort out what is wrong. 

Once you understand the changes made, you will need to respond to the letter before the due date given. If you agree that the changes are correct and the new amount is accurately due, simply use the voucher at the bottom of page 1 to pay the tax due. 

How Do You Respond if You Disagree?

If you don't agree with their changes, respond to the letter either by phone (a number is provided) or by mail. Include a brief letter of explanation as to why you disagree with the adjustments, any backup documentation from your return that can verify your position and the "contact information" page included in the letter. You will receive a response from the IRS (generally by mail) in as little as a month or so after they receive your response. 

By understanding this common lRS notice, you can save yourself time, money and stress when you receive one. For more tax help, contact a group like Merrill L. Johns & Associates.