In a group discussion about income taxes this week, one friend said he had turned over all his paperwork to his accountant two weeks ago and then, just yesterday received an unexpected K-1 for a very small amount from his employer. His comment was that he was not going to pass it along to the accountant as it was not worth the bother.
K-1s, like forms 1099, are provided both to a taxpayer and the IRS. We know that the IRS has the ability to “match up” numbers on a taxpayer’s return with the information received via K-1s and 1099s. Even if a small amount does not appear to be worth the hassle, the IRS can find that mismatch relatively easily and it may prompt questions as to just how accurate the other information on the return might be. Even a letter audit takes more time and energy than simply calling, texting or e-mailing your tax preparer and providing the last minute information.
Taking the approach that “an ounce of prevention is worth a pound of cure” makes sense not just for your income taxes but for most aspects of your business. It might be annoying to keep your files, spreadsheets, lists and other information tracking and storage up to date but it sure can provide confidence that you are ready to meet any questions or issues that may come up. Just because such problems have not occurred in the past is no assurance you will not experience one in the future. So don’t just skip over that $90 K-1 and open the door to an issue that will cost far more to resolve – report it and then forget about it.