The IRS recently announced its plans to significantly ramp up tax audits on the wealthiest taxpayers, large corporations and large, complex partnerships for tax year 2026. Audit rates will increase by more than 50% for those with total positive income of more than $10 million. That news is sure to trigger anxiety in some high-net-worth individuals.

But if you’re in that bracket, or any tax bracket for that matter, let me set your anxieties at ease. An IRS audit is more of an exercise that seeks documentation; it’s not necessarily an accusatory event.

You learned this in grade school

I like to think of an IRS audit as something that is similar to what goes on in classrooms. Remember when you had to take math tests in elementary school? Maybe you had to answer a quiz with 10 multiplication problems. You did them all in your head and turned in your exam.

The teacher looked at your answers, which were all correct. But she noticed you didn’t show your work. She couldn’t tell by merely checking your answers that you knew how to arrive at the solutions.

So she handed the exam back to you and said, “Can you show me how you solved these problems? Can I see the process you used to get these answers?”

When you get audited, the IRS wants to know how you got the answers you did.

Taxpayers should be able to explain and justify their tax positions and investments to the IRS. Proper documentation is crucial, and I advise clients to prioritize it. I tell them to make a note of what they do and when they do it. This way, they have their homework in place and ready to show the IRS if it’s needed. Start a file or folder that includes all the forms and documents that explain your financial actions.

The documentation should answer these questions:

• What did you do?
• How did you do it?
• Why did you do it?
• What documents do you have that support what you did?

Let’s say you’re a real estate professional. You need to have 750 hours a year of aggregated time in real estate activities to qualify as a real estate professional in the eyes of the IRS. Suppose the IRS decides to audit your return from five years ago. They ask for documentation to show that you spent 750 hours on real estate-related tasks during the year in question.

Do you have documentation that shows this? Maybe you spent an average of 40 hours a week at an office as a broker. You might have had regular training meetings with your staff. Your calendar may have been full of appointments. All those activities could serve as the evidence you need.

The approach for business owners is slightly different. These individuals are inherently risk-takers. Everything related to their business carries risk. They hope that by making purchases, investing in a workforce, targeting new markets or expanding their geographic reach, they’ll receive a return. Their goal is to generate revenue that exceeds the costs involved.

Translating this to tax planning, then, I ask, “Why would a business owner be any different when they’re looking at an advanced planning strategy?” They aim to take a calculated risk and say, “Can I document this position that gives me the ability to make an argument to the IRS on why this position works? If I were to get audited, do I have enough documentation to support it?”

Red flags that could trigger an audit

Most of the causes behind an audit stem from an error or omission. In some cases, not all the 1099s or K-1s get turned in. Illegal practices, such as fabricating documents, taking deductions that aren’t allowed or making up different types of expenses that didn’t occur, can lead to trouble.

Here are some situations that could draw the IRS’ attention:

Certain transactions. The IRS has identified the transactions on this list as potentially abusive. They are the same or substantially similar to those that the IRS has determined to be tax-avoidance transactions.

Dirty Dozen. The Dirty Dozen list, published annually by the IRS, highlights common tax scams and abusive transactions.

Active vs passive losses. Many taxpayers incorrectly use passive losses to offset active income (like wages). The IRS considers a passive business or trade activity one in which you don’t materially participate — i.e., you’re not involved in the operation on a regular or substantial basis. Popular passive activities include rental real estate, equipment leasing, limited partnerships and limited liability companies (LLCs). Passive losses can be written off only against passive gains.

Partnerships. The IRS is focused on partnerships that don’t pay corporate income taxes. Tiered partnerships, or those that own another one, can provide a way of hiding income.

Keep your transactions and actions well-documented so that you’re prepared if you get audited. In that event, you’ll be ready to show your homework. If you don’t want to have to represent yourself, there are attorneys and CPAs who specialize in tax-controversy work.

Related Content

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• How to Handle an IRS Audit of Your Tax Return
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• Does the IRS Audit Some Taxpayers More Than Others?

2024 tax refund

IRS inflation-adjusted amounts could partially account for higher refunds in 2024. For example, 2023 standard deduction amounts increased by more than 6%, and federal income tax brackets also increased, so taxpayers who received only small raises (or none at all) may see a big difference in their 2023 tax liability when they file.

Families with lower incomes could see a significant increase in refund amounts too, even if they don’t benefit from the higher standard deduction. The maximum earned income tax credit (EITC) amount increased by nearly $500 for the 2023 tax year. And because the credit is 100% refundable, eligible taxpayers could receive the entire amount (up to $7,430) back as a tax refund.

What about the child tax credit? If the new child tax credit (CTC) becomes law this year, some families could receive even more money back as a tax refund.

However, the bipartisan tax bill, which includes an expansion to the CTC, is currently stalled in the Senate. So, there is no guarantee that the bill will become law before the end of the 2024 filing season — if at all.

What could cause a lower tax refund? There are several reasons your federal tax refund could be less this year.

• If your dependent child turned 17 in 2023, they won’t qualify for the CTC.
• Other major events, such as getting a divorce or an adult dependent moving out of the home, can decrease your refund amount.
• If you (or a spouse if filing jointly) had a significant increase in income, you could be disqualified from claiming certain credits.
• Underpaying when you made estimated tax payments for 2023 will increase your tax liability when you file.

There are many more reasons you could see your tax refund decrease (or your tax bill increase) in 2024. So, you may see a difference in your refund this year, even if none of the above events apply.

IRS refund schedule 

While several “IRS refund schedules” are available online, the dates on those schedules are estimates. Some tax returns take longer to process than others, and several things, including incomplete returns and refunds that need adjusting, can cause processing delays. 

However, the IRS issues refunds for most e-filed returns within three weeks. (Processing can take up to eight weeks for paper returns). E-filing and choosing to receive your refund via direct deposit remain the best options for receiving your refund sooner. You can begin checking the status of your tax return with ‘Where’s My Refund’ within 24 hours of IRS acceptance.

Where's my refund

To access the "Where's My Refund" tool, you need to enter your Social Security number or individual taxpayer identification number (TIN), the filing status used on your federal income tax return, and the exact whole dollar refund amount shown on your return. You can use either spouse's Social Security number if you filed a joint return. 

'Where's My Refund' is only updated once per day  —  usually at night  —  so there's no need to check your status more often than that.

For more information see: Where's My Refund? How to Track Your Tax Refund Status.

Related Content

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• How Much Richer Could You Be Without a Big Tax Refund?

While no one wants a high-income tax bill, owing the IRS just a little could put more money in your pocket. Here’s how much richer you could be if you kept your money throughout the year instead of receiving it back as a tax refund.

IRS tax refund

According to the most recent IRS data, the average tax refund is $3,182 this month. That is a good chunk of change and is likely due, at least in part, to refunds that include the child tax credit (CTC). 

Middle-class families who include other credits (including the CTC) on step 3 of their W-4 will likely have less federal income tax withheld from their paychecks. Of course, this could result in a lower tax refund when it’s time to file, but that is not necessarily a bad thing. With some adjustments to withholdings, some taxpayers could have pocketed just over $265 per month instead of receiving $3,182 all at once.

[Note: Projected earnings amounts are approximate and do not account for inflation.]

Saving for the future  

If you had stashed away that $265 each month instead of waiting until tax time for your refund, you could have hundreds more in the bank. (That's assuming you deposited the money into a high-yield savings account with a 5.5% interest rate.) And even though savings rates are expected to fall, receiving a big tax refund in 2024 could cost you money next year as well.

Invest extra cash

If pocketing an additional $186 over three years isn’t enough to convince you that bigger tax refunds aren’t always better, perhaps pocketing an additional $4,637.69 will. Here is how much more money you could pocket over the years if you invest $265 each month rather than $3,182 per year, assuming a conservative 6% annual rate of return.

Income tax savings 

Providing the government with an interest-free loan is not ideal, but it is worse to give away your hard-earned money. Missing out on often overlooked tax credits and deductions, such as the mortgage interest tax deduction and deduction for student loan interest, can result in the IRS keeping more of your money.

And don’t forget about ways to reduce your taxable income throughout the year. For example, record-high 2024 HSA contribution limits mean eligible taxpayers could reduce their taxable income by up to $8,300 this year. And IRA and 401(k) contribution limits are higher for 2024 than they were last year, too. 

Just make sure you don’t exceed contribution limits for tax-advantaged or tax-deferred accounts. If you do, you could lose money instead of saving it. And if you do adjust your tax withholdings to receive a smaller tax refund next year, make sure you can pay the IRS (if you have a tax bill) on time because there are hefty penalties for paying late. 

Because every tax situation is different, it’s a good idea to consult with a tax professional when determining how to keep more of your money year-round and during tax filing season.

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Meet John and Linda. They are a newly retired fictional couple. We will use their story to illustrate, and help you prevent, some of the following mistakes.

1. Itemizing deductions vs taking the standard deduction.

One of the first things I notice when building out John and Linda’s financial plan is that there is still a mortgage balance. This is not an issue because they refinanced into a 15-year, 3% loan in 2021.

However, they assume that because they have a mortgage, they should itemize deductions. While that was often the case before tax laws changed in 2018, it is no longer. They have been taking the standard deduction for the last few years, which should have a downstream effect on several of the decisions they make.

John and Linda give to their church. They think that there is a tax benefit to this giving. Because they take the standard deduction, there is not. They could instead give appreciated stock and thus avoid capital gains taxes. More on that later.

Linda had a rough 2023, from a medical perspective. She spent an inordinate amount of time calculating the total cost because she believes it will be a deduction. But all you can deduct are the medical costs that exceed 7.5% of your AGI. To determine your itemized deductions total, add up medical costs, mortgage, state and local taxes and charitable donations. Then itemize only if that amount is greater than the standard deduction, which is above $30,000 for couples over 65, in 2023. (For more on this, see the article The Extra Standard Deduction for People Age 65 and Older.)

2. Improperly reporting qualified charitable distributions (QCDs).

Once John and Linda learn that they aren’t deriving any tax benefits for their charitable giving, they ask about a strategy their friend told them about: giving from their retirement accounts.

Qualified charitable distributions (QCDs) have been around for a while but have surged in popularity as fewer and fewer people itemize their deductions. Unfortunately, neither John nor Linda is 70½, the minimum age to make a QCD. Neither cracks a smile when I tell them to “be thankful for your youth.”

The biggest mistake I see among those who are eligible and who properly make the distribution is that they don’t actually report it on their return. I blame this on the custodians. On a Form 1099, custodians do not report who the money goes to — just that it has gone out.

Example: You give $30,000 from your retirement account to The Michael J. Fox Foundation. You take out an additional $10,000 to meet your required minimum distribution (RMD). Your 1099 will report a $40,000 distribution. There is no differentiation between recipients.

You have to report the gross distribution ($40,000) on line 4(a) and the net on line 4(b), of Form 1040. In between those, the letters “QCD” should be written. If you made a QCD and don’t see that reflected on your return, reach out to your preparer to make sure it was reported.

We rely on financial planning to see how much our clients can afford to give. We rely on tax planning software to see whether QCDs are the best way to give. You can access a free version of our planning software here.

3. Getting surprised by taxes via phantom gains or inefficient portfolios.

When I met with John and Linda in 2023, I was reviewing their 2022 return, which had a very large capital gain. Whenever I see this in a down year in the market, I ask what they sold. They told me they didn’t sell anything. Upon further review, we found that one of the mutual funds in their joint account had recognized significant capital gains.

Tax treatment within mutual funds passes capital gains, on a pro-rated basis, through to the owner of the fund. So, if the fund manager decides they no longer like Nvidia (NVDA), that gain passes along to you. Making money is still a good thing, and paying taxes is part of that. However, this makes tax planning very unpredictable. So we prefer to hold ETFs and individual stocks in taxable accounts. With these vehicles, you pay taxes when you sell, not when a fund manager does.

4. Selling stock with no basis.

We have recommended that John and Linda make their charitable contributions using stocks that have had significant gains. In looking at their statements, there are a few options. What really sticks out to me, though, are the five holdings that have no basis reported.

Custodians were not required to track basis on securities until 2011. So, many of the investments from before this period show up as “0” basis on a statement. If you sell them, the entire amount is taxed as a gain. People make this mistake all the time. It could be because they don’t realize or don’t want to take the time to make the calculation. If you’re in the latter boat, you may want to donate these shares if you were going to give that amount anyway. Odds are, if you’ve held them for 15-plus years, there is a significant gain.

5. Paying more than necessary for Medicare.

John filed for Medicare this year. Linda filed last year. Their premiums for 2024 are based on income in 2022, when both were working. They should consider filing an SSA-44, the life-changing event form. This will allow them to project current income and pay premiums based on their current income, not their income while they were both working.

As you may have inferred from the above paragraph, Medicare Parts B and D premiums fluctuate based on income. Like our tax rates, there are income thresholds above which your premium goes up. Often, I see people going slightly above these threshold amounts without realizing it. If we catch this before the return is filed, we will look for ways to bring down their gross income. (For more on this, see my article Four Things to Know if Medicare’s IRMAA Kicks In.)

6. Not taking advantage of lower tax years.

John and Linda were jazzed about the tax return their accountant projected. Neither worked the full year, so they overpaid based on what they had earned previously. Their taxes are likely to remain low until they tap Social Security and their retirement accounts.

We refer to the years between retirement and withdrawals as “tax valleys.” Tax peaks are during your peak earnings years, and valleys are just the opposite. Take advantage of those valleys by evaluating whether you can convert retirement funds, take distributions or sell capital gains at a lower rate than you would be able to in the future.

Often when I’m reading a “mistakes to avoid” article, it’s just to ensure I didn’t make those mistakes. This one is a bit different. While you may have fallen victim to a few of these, in some cases it means you can file an amended return and get money back. At the very least, you can fix the mistake in time for future years.

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As you’re filling out your 2023 Form 1040 you may ask whether you should itemize on Schedule A or take the standard deduction. Most filers take the standard deduction because it’s higher than their total itemizations. But not all. 

Take people with big medical bills. Itemizers can claim medical expenses not reimbursed by insurance, for themselves, their spouse and dependents. The cost must be incurred primarily to alleviate or prevent a physical or mental disability or illness. But there is a floor. Medical expenses are deductible only to the extent the total exceeds 7.5% of your adjusted gross income (AGI). For example, if you itemize, your AGI is $100,000 and your total medical expenses are $9,000, you can deduct only $1,500 of medical expenses on Schedule A ($9,000 - $7,500).

The list of eligible medical expenses for tax deductions is broader than most people think. It includes:

• The basics: Such as out-of-pocket payments to doctors, dentists, optometrists and other medical professionals; mental health services; hospital stays; annual physicals; health insurance and Medicare premiums; prescription drugs; insulin; glasses and contact lenses; hearing aids; and dental work, such as braces and root canals.
• In vitro fertilization: Amounts paid for IVF qualify as medical expenses. 
• Medical driving: The 2023 standard mileage rate is 22¢ per mile. It's 21¢ per mile in 2024.
• Treatment for drug use or alcoholism: This cost is considered a medical expense.
• Health and wellness costs: Among other health and wellness costs that qualify as deductible medicals are smoking cessation programs, nutritional counseling for a doctor-diagnosed disease, weight-loss programs and certain special food to help with the treatment of obesity, hypertension, heart disease or other physical illnesses diagnosed by a physician. 
• Long-term care costs: If you, your spouse or your dependent requires long-term care you may be able to deduct the unreimbursed costs as medical expenses. Long-term-care expenses include the costs of assisted living, in-home care and nursing home services. The long-term care must be medically necessary for one who is chronically ill. The costs of meals and lodging at an assisted living facility or a nursing home count as medical expenses for people mainly there for medical care. Premiums you pay for a long-term-care policy are deductible medicals, too. But the deduction is capped based on age. The older you are, the greater the write-off. 
• Certain home improvements to adapt to a disability or illness: For instance, ramps, wide doorways or entrances, railings and wheelchair lifts.
• The cost of a service dog: Veterinary costs for a service dog to assist the visually impaired and others with physical disabilities are eligible for medical expense deductions. The same is true for the cost of buying and training the dog, plus feeding and grooming. An emotional support animal counts if needed primarily for the owner’s medical care to alleviate a mental disability or illness.
• COVID-19 personal protective equipment: Masks, hand sanitizers and other supplies bought for the primary purpose of preventing the spread of COVID-19.
• The cost of a legal abortion: The procedure must be performed in a state where abortion is legal. Transportation costs are deductible. Hotel expenses of up to $50 a night can also be deducted if the abortion is provided by a doctor in a licensed hospital or a medical care facility. You can take up to an additional $50 a night for a traveling companion’s lodging.
• Genetic testing through DNA ancestry registries: If you use a DNA ancestry for genetic health testing, such as 23andMe, the portion of the DNA collection kit's cost that pertains to genetic testing may be treated as a deductible medical expense. 

Among the costs that do not qualify as deductible medical expenses:

• Most food, weight loss supplements or low-calorie beverages. 
• Weight-reduction programs or cosmetic surgery procedures to improve your appearance.
• Gym membership fees. 
• Teeth whitening and hair transplants.
• An elevator installed in your home (it adds value to your house).
• Over-the-counter medications that are bought without a prescription.
• Amounts paid for marijuana and other substances that aren't legal under federal law. It doesn't matter whether they are legal under state law.
• Illegal operations or treatments.
• Amounts paid to or for a gestational surrogate, including costs to identify and retain the surrogate and the person's medical expenses.

For more details on these and other qualifying and nonqualifying medical expenses, see IRS Publication 502, Medical and Dental Expenses.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe. 

So, to sort out some of the confusion, here’s what you need to know about how reselling concert tickets (not just those for Swift’s tour) might impact your tax bill.

Ticketmaster, StubHub tickets and your taxes

It's not uncommon to come across Eras Tour, Beyonce Renaissance Tour, and other tickets being resold on platforms like StubHub and Ticketmaster, particularly during times of high demand. Assuming, for instance, Swift's tour tickets originally sell for around $449, ticket resellers can profit substantially from selling coveted seats for $1,300 or more. That’s where tax could have come in if the IRS hadn't jumped in to change things.

Ticket resellers may have been subject to new IRS reporting requirements if, as in that example, they resold ticket(s) online and profited over $600. Form 1099-K reporting rules apply if you sell goods or services (not just concert tickets) online and receive payment through third-party payment networks like Stripe, PayPal, Venmo, and others.

That is the new “$600 rule.” For the 2022 tax year, the IRS delayed the implementation of the rule. That delay was supposed to give payment networks more time to prepare to send millions more 1099-K forms and online sellers more time to understand the new requirement. And just recently, the agency has decided to delay the $600 rule again until 2024.

So, for now, unless you have over $20,000 in payments for goods or services through online marketplaces or third-party payment processors in 2023, you don't have to worry about the $600 rule.

Online sales 1099-K reporting

Many businesses are subject to 1099-K reporting requirements. A few examples include popular platforms like Etsy, Depop, eBay, Poshmark, etc. (But this is far from an all-inclusive list.) If you need clarity on whether you will receive a 1099-K, most of these sites have information on their websites that can help.

However, personal transactions (e.g., personal payments to friends and family) on payment networks, including Venmo, PayPal, Cash App, etc., aren't considered "payments for goods and services." The 1099-K third-party payment network reporting rule doesn't apply to payments made that were gifts or other personal money payments to family and friends.

For now,  the $600 rule won't apply for the 2023 tax year (i.e., federal income tax returns that are normally filed in April 2024). That means if you received payment (for goods or services) over $600 through online platforms this year, you shouldn't have to worry about receiving a 1099-K form by January 31, 2024, to use when you file your 2023 federal income tax return. 

For 2024, the IRS is planning to phase in a $5,000 reporting threshold. To learn more, see 1099K Tax Reporting: What You Need To Know.

Will you have to pay taxes on your ticket sales?

Receiving a 1099-K doesn’t necessarily mean you will have to pay taxes on your ticket sales. For example, on its website, Ticketmaster tells sellers that the 1099-K “just provides the total gross transactional amount processed by Ticketmaster during that calendar year.” As always, your tax liability depends on several factors, including taxable income, tax deductions, and credits. 

However, whether you receive a 1099-K or not, it is important to report any taxable income on your federal income tax return as required by the IRS. (This typically includes profits from reselling concert tickets.) 

If you are worried about the impact of your online selling on your tax liability, consult a trustworthy tax professional.

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The 2024 tax filing season is in full swing. The IRS began accepting 2023 Forms 1040 and other federal tax returns on January 29. As you're getting ready to file your 2023 return, or perhaps even just thinking about filing, you may be wondering how long you need to keep your old tax returns and related records. We get asked this question a lot by people looking for a cutoff date to toss paperwork relating to taxes that they have been saving for years. The answer depends on the type of document and the kinds of transactions you engage in.

Tax returns and Records - General Rule
As a general rule, you should keep your tax returns and supporting documents for at least three years from the due date of your return. That’s generally how long the IRS has to question items on your return and to bill you for any additional tax. It’s also generally the timeframe to file an amended return to seek a refund. There are situations when the IRS can audit even older returns. The IRS can go back up to six years if your return omits more than 25% of income. If fraud is proven, there is no limit. Also, you may have to keep your state tax returns for longer than three years, depending on your state's rules.  

Tax Returns and Records You Should Keep for Longer
Don’t automatically throw out all of your tax returns and records after three years. Look over old documents to see if you might need any parts of them in the future. Here are some common examples of records and returns that you should keep longer than three years.

Real Estate

• Hold on to records that help establish the adjusted basis of real estate
• Save your settlement sheet whenever you buy real property, including your home
• Don’t throw away receipts or invoices for improvements made to the property that add to its value, prolong its useful life, or adapt it to new uses 
• If you have multiple real estate properties, it’s best to have separate folders for each
• Retain all files until at least three years after you dispose of the property

Taxpayers who keep good records will find it easier to calculate the adjusted basis of their real estate investments, which you'll need when you sell the property, compared with people who don’t maintain records.

Securities
The same rules that apply to real estate apply to securities transactions. You should hold on to all records until at least three years after you dispose of the securities. Be sure to keep your purchase documents for taxable mutual funds, stocks and the like. You'll need to include the purchase date and cost on your return in the year you sell the assets. Among other records to maintain:

• Those showing stock splits, dividend reinvestments and nontaxable distributions
• If you invest in bonds or Treasury bills or notes, track when these securities mature

IRAs and 401(k)s
If you’ve made nondeductible pay-ins to traditional IRAs or post-tax pay-ins to 401(k)s:

• Save records until three years after the accounts are depleted
• File Form 8606 with your return for the year you make a nondeductible contribution to a traditional IRA. If you don’t, those contributions will be treated the same as deductible pay-ins when withdrawn
• Retain copies of Form 8606 and your 1040s for each year that such pay-ins are made
• Hold on to Form 5498 or similar statements reflecting the amount of IRA payouts

Inheritances and Gifts
If you inherit property or receive property as a gift that you might eventually sell, heed this advice:

• For inheritances, you’ll need to know the date-of-death value. 
• For gifts, you’ll need to know the donor’s cost. 
• So, keep documentation of these figures until three years after you sell the asset

Businesses 
Businesses should hang on to payroll tax records for a minimum of four years after the due date for filing Form 941 for the fourth quarter of a particular year. Among the information to be retained: 

• Wage amounts
• Payment dates
• Employee data (such as names, employment dates and Social Security numbers)
• Periods for which workers were paid while absent because of sickness or injury
• Copies of all W-4 forms and payroll returns, and amounts and dates of tax deposits
• Records of tips earned by workers and fringe benefits provided to employees

Copies of worker health coverage forms should be kept at least three years after the deadline for filing these documents. These are the 1094 and 1095 forms that many employers are required to file to report employee health insurance data.

Also, records on costs of business assets, depreciation, etc., should be retained for decades.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

Typically, the IRS locks accounts of taxpayers who have passed away to prevent fraudulent use of the deceased person’s information. When your account is locked by the IRS because you have been marked deceased, you can't file tax returns or receive tax refunds.

The IRS confirmed that many of the "taxpayer accounts were locked in error due to both human and computer programming issues when identifying the appropriate taxpayer accounts to be locked,” the report states.

IRS mistakenly ‘deceased locked’ taxpayer accounts

The TIGTA looked at taxpayer account information from January 1, 2022, and found that the IRS locked close to 78,000 taxpayers' accounts due to mistakenly being deemed deceased by the agency. 

According to the report, “In these instances, the Social Security Administration’s (SSA) data didn't indicate that the taxpayer was deceased, i.e., there was no date of death present.”

TIGTA also found that through October of 2022, the IRS continued to decease lock accounts for taxpayers who weren’t dead. From January to October of last year, data showed the agency erroneously locked an additional 14,193 taxpayer accounts. 

At the beginning of 2023, the IRS worked to reconcile some of its records with information from the SSA. According to the TIGTA, about seventy percent of accounts reconciled in that process were improperly issued an IRS CP01H notice.

What is a CPO1H Notice?

• A CP01H notice is a letter issued by the IRS when the agency receives a tax return that contains a Social Security number (SSN) for a locked account. 
• The IRS usually locks accounts because the taxpayer identification number (TIN) on the tax return belongs to someone who the IRS believes died before the tax year of the return. Sometimes, the account is locked by the IRS due to identity theft.
• But as the TIGTA report found, thousands of taxpayers received CP01H notices in error.

To help the IRS resolve the problem, the TIGTA made several recommendations. (Those mainly involved reviewing affected taxpayer accounts and taking action to remove erroneous locks.) However, another TIGTA recommendation was that the IRS update its CP01H notice to state that taxpayers can work with the agency to resolve the mistaken deceased locks. 

According to the report, the IRS argued that the CP01H letter already directs taxpayers to resolve account lock issues with the SSA. However, TIGTA believes that the IRS should “clarify the notice so taxpayers are aware they can work directly with the IRS to correct the erroneous deceased account locks.”

What to do if the IRS thinks you’re deceased 

If you receive an incorrect CP01H notice, the IRS says you should contact the Social Security Administration to resolve the situation. After the SSA corrects the information, the IRS says you can file your return by following the instructions on the notice. That process involves providing the following information. 

• A copy of the CP01H notice
• A written request to unlock the account
• A photocopy of your passport, driver’s license, Social Security card, or other valid U.S. federal or state government-issued identification
• Your federal tax return with original signatures

The IRS also suggests you double-check that the information provided on your tax return is correct — mainly, your Social Security number. 

Related

• The Most Expensive States to Die In (Due to Death Taxes)
• The Problem With Claiming the Employee Retention Credit (ERC)
• Filing a Deceased Person's Final Income Tax Return

The study, conducted by researchers at the University of Michigan, using data from the U.S. Treasury Department, found that nearly 90% of married heterosexual couples who filed joint federal income tax returns listed the man's name before the woman's name. The tendency to list the man’s name first on the tax return was linked to factors like political and gender attitudes, risk tolerance, and fear of tax noncompliance.

However, the study additionally revealed that the number of joint federal income tax returns filed with the man’s name listed first on Form 1040 has declined by more than 9% over the last two decades. 

Does it matter whose name is first on a tax return? 

The person listed first on your joint federal income tax return is sometimes called the “primary taxpayer.” But it’s important to note that your tax liability remains the same whether you list your name or your partner's name first on your federal income tax return when you are married and filing jointly. And the order of spouse names on your joint tax return doesn’t mean one spouse has more or less income or will have to pay more or less tax than the other. 

However, when you file taxes jointly, both spouses must sign and date the return. Also, the IRS says you and your spouse are generally responsible for any tax, interest, and penalties due on the joint return. So, is this study relevant? 

Income tax returns: Who’s on first?

The study authors say data findings on tax return name order are informative for two main reasons.

• Data show that the decision of married couples filing jointly to list the man's name first on the tax return isn’t a random one, and
• Listing the man’s name first on the return can reflect social norms, attitudes, and mindsets. 

(Researchers based those and other conclusions on a sampling of data from IRS records containing information from individual income tax returns filed from 1996 to 2020.)

The researchers make clear that the Treasury Department has not “revealed the gender distribution of the name order on joint income tax returns.” Despite this, the study discovered that:

• From the 2020 tax year, the man’s name was listed first on jointly filed returns 88.1% of the time. In 1996, that number was 97.3% for the man’s name being listed first.
• Listing the man’s name first on a tax return correlated with several varied factors, including being highly religious (61% chance), politically conservative (65% chance), Christian (70% chance), and against abortion (73% chance). According to the researchers, those findings were based on state data cross-referenced with filers' addresses.
• Joint tax returns with the man’s name listed first reportedly correlated with a greater propensity toward financial risk. (Examples provided in the research include holding stocks over bonds, engaging in tax evasion, etc., which researchers say they found from matching returns with random IRS audits.) 

The researchers note that opinions and conventions regarding who should be listed first on a tax return could be changing. That's partly because younger filers were generally more likely to list the woman’s name first on their jointly filed federal income tax returns. (According to study data, about 25% of new joint filers in 2020 listed the woman’s name first on the return.) 

IRS audits and tax noncompliance? 

As it turns out, however, most people maintain the same order of their spouse's name on their federal income tax returns. (According to the study, nearly 99% of filers chose the same name order for their federal tax returns in consecutive years.) 

The researchers point out that Instructions for Form 1040 have suggested that the first person listed be the one who completed the tax return. Over the past 20 years, this may have historically resulted in the man’s name being listed first in a joint filing scenario — for any number of reasons.

Also, the IRS encourages taxpayers to enter their names and Social Security numbers in the same order as on their return from the previous tax year. The agency has suggested that changing the order from one year to the next can potentially cause processing delays. 

So, who’s listed first on a federal income tax return may or may not be a choice correlated with social norms, attitudes, and perspectives. But for some taxpayers, it’s also possible that the order of spouses' names on tax returns persists because of Form 1040 instructions and longstanding fears of IRS audits and tax noncompliance.

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When someone is deceased, the decedent's personal representative is generally required to file any final tax returns for the deceased person. This includes federal income tax returns that the decedent would have been required to file for the year of his or her death. A personal representative can be an executor, administrator, or anyone else who oversees the decedent’s property. 

Read further for more information on how to file a final federal income tax return for a deceased person.

Filing a final Form 1040 or 1040-SR for a deceased spouse 

If your spouse died during the year, you are considered married for the entire year for federal income tax purposes, provided you didn’t remarry that year. So, for example, if your spouse died this year and you don’t remarry before Dec. 31, 2024, you can file a joint 2024 return next year. The return would show your spouse’s income before death, and would show your income for the entire year. 

• You would mark “married filing jointly” for your filing status and include your spouse’s name and your name and address as normal in the name and address fields of Form 1040 or 1040-SR. 
• If filing a paper return, write the word “deceased,” along with the decedent’s name, and date of death, at the top of the 1040 or 1040-SR.
•  If you are using tax preparation software, the software will do this automatically for you once you mark that the spouse is deceased and enter the date of your spouse's death.

If there is a court-appointed personal representative, that representative must sign the return along with the surviving spouse. If there is no court-appointed representative, the surviving spouse would sign, and write “filing as surviving spouse” in the decedent’s signature box.

If you are filing a joint return that shows a refund due, there is nothing you need to do to receive the refund, other than filing the tax return.

If you remarry before the end of 2024, you file a joint return with your new spouse, and your deceased spouse’s filing status will be married filing separately.

Here's a tip. The qualifying widow or widower filing status lets surviving spouses with dependents use the income tax brackets and standard deductions for joint filers for two years after a spouse’s death. 

For example, if your spouse died this year and you have two minor children, you can file a joint 2024 return. Then for your 2025 and 2026 returns, you can file as a qualifying widow or widower, provided you are still unmarried at the end of 2025 and 2026 and claim dependent children for these years. 

Filing a final Form 1040 or 1040-SR for an unmarried decedent 

The decedent’s final federal income tax return would report his or her income and expenses before death. If filing a paper return for the decedent, write the word “deceased” and the decedent’s name and date of death at the top of the 1040 or 1040-SR. If you’re using tax preparation software, the software will do this automatically for you once you mark that the filer is deceased and enter the date of death. 

You would also mark the decedent’s filing status as single or head-of-household, depending on the situation. You write the decedent’s name on the name line of the 1040 or 1040-SR and the personal representative’s name and address in the remaining name and address field.

If there is a court-appointed or court-certified personal representative, that representative should sign the return. If not, and there is no surviving spouse, then whoever is in charge of the decedent’s property signs the return as the personal representative.

If a refund is due to the decedent, you may have to complete and attach Form 1310 to the final 1040 or 1040-SR. This rule does not apply to surviving spouses who file a joint return with the decedent. Nor does it apply to court-appointed or court-certified personal representatives, who are instead required to attach to the return a copy of the court document showing the appointment. However, all other filers requesting the decedent’s tax refund must attach Form 1310.

Here is another tip. The IRS has an interactive tax assistant on its website to help you file a deceased person’s federal income tax return. The online tool, (i.e., "How do I file a deceased person's tax return), asks several questions, including the marital status of the decedent, whether the decedent is owed a refund, and whether a court-appointed representative, or a personal representative is designated by the will.

Failing to file a decedent's final return: What happens if you don't file a deceased person's taxes?

The consequences for not filing a decedent's final federal income tax return depend on whether the decedent owes money to the IRS or is due a refund for the year. 

• If the decedent is required to file a return for the year and owes money with the final return, then the IRS will eventually send a notice to the decedent's last-known address about the requirement to file a return.
• If the taxes aren't paid, then the IRS could eventually go after the executor, or maybe even the decedent's heirs to the extent the heirs received the decedent's property upon death, for the unpaid taxes.
• If the decedent is owed a refund, and no final income tax return is ever filed, then the decedent's heirs will not get the refund payment.

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