What to Know If You Receive an IRS Notice

Notices from the IRS are more common than you may realize. Each year, the IRS mails millions of letters to clarify information, confirm changes or request additional documentation. Receiving a notice may seem intimidating, but most notices can be addressed quickly with the right information and guidance.

5 Common IRS Notices Explained

Each IRS notice includes a reference number, such as CP49 or CP14. It identifies the issue and helps determine the appropriate response. Below is an overview of the most common types of notices and what to do if one arrives in your mailbox:

1. CP12 (including CP12, CP12E, CP12F, CP12G, CP12N and CP12U), refund adjustment. A CP12 is sent when the IRS corrects a math error or similar issue on your tax return. The correction may increase or decrease your expected refund. If you agree with the change, no response is required. If you disagree, call the IRS at the toll-free number shown on the notice by the date indicated.

2. CP14, balance due. This notice informs you that you owe taxes. Address the notice promptly. You can pay in full, explore installment options or seek assistance if you believe the notice is incorrect. Ignoring it can result in interest charges, penalties and collection actions.

3. CP49, refund applied to a debt. This notice explains that your refund was used to pay all or part of an outstanding tax liability. Review how the refund was applied. Disputes are generally handled with the agency that received the funds, not the IRS. On a joint return, a spouse who’s not responsible for the debt may be able to recover his or her share of the refund by filing Form 8379, “Injured Spouse Allocation.”

4. CP2000 series, proposed changes to your return. This notice is issued when the IRS compares your tax return to information reported by third parties, such as employers or financial institutions, and finds a mismatch. It isn’t a bill; it’s a proposal to adjust your return. Read the notice carefully and respond by the deadline listed. Follow the instructions, include any required documentation and note whether you agree or disagree. If no response is received, additional notices or a bill may follow.

5. Letter 4883C, identity verification. When the IRS suspects possible identity theft, it may pause processing your return until your identity is confirmed. Call the Taxpayer Protection Program hotline as directed in the letter. Have the tax return referenced in the letter, a prior-year return (if available), and supporting documents, such as Form W-2, Form 1099 and Schedule C, ready. If you didn’t file the return listed in the notice, contact the IRS immediately, because this may indicate identity theft.

Speaking of fraud, remember that the IRS will never email, text or call demanding payment. Legitimate notices always come by mail.

Understanding Your Options

IRS notices can be confusing, especially when calculations or supporting documents are involved. If you receive a notice, contact the office for help confirming whether it’s accurate, understanding your options and communicating with the IRS.

The IRS Criteria for Distinguishing Hobbies From Businesses

Turning a favorite pastime into income can be rewarding, but it raises an important tax question: Is the activity a hobby or a business? The answer matters because different tax rules apply to each.

All income must be reported on your tax return, regardless of whether it’s from a hobby or a business. But related expenses (and losses) are deductible only if the activity is a business.

What the IRS Looks At

The IRS distinguishes a hobby from a business based on several factors. It weighs all the facts and circumstances, and no single factor is more important than another.

One factor the IRS considers is whether you conduct the activity in a businesslike manner. This includes maintaining complete and accurate records, tracking income and expenses and taking steps to improve operations. The time and effort you devote is important — especially when they demonstrate an attempt to make the activity profitable rather than purely recreational.

Your financial situation is also considered. If you rely on the activity’s income to support yourself, the activity is more likely to be viewed as a business. If other earnings primarily fund the activity, it may be treated as a hobby. Personal motives, such as pursuing the activity mainly for enjoyment or relaxation, can weigh against business classification.

Profit history and future potential are also key. The IRS considers whether losses you’ve experienced are typical for a start-up (assuming you began the activity relatively recently) or caused by factors outside your control. If so, the IRS may view your activity as a business. Experience and success in similar activities can further support business status. Additionally, the expectation of future profit from the appreciation of assets used in the activity can indicate a business motive.

Tax Treatment of Related Expenses

Historically, taxpayers with hobby income could generally deduct certain related expenses as miscellaneous itemized deductions, subject to a 2% adjusted gross income (AGI) floor. The Tax Cuts and Jobs Act suspended these deductions for tax years 2018 through 2025. The legislation commonly known as the One Big Beautiful Bill Act, signed into law in July of 2025, made that suspension permanent. This means that if the activity is a hobby, you can’t deduct expenses associated with it. However, you must still report all income from your hobby.

If the activity is considered a business, you can deduct related expenses. If the business activity results in a loss, you can deduct the loss from your other income in the same tax year, subject to various limits.

Seek Professional Guidance

The line between a hobby and a business isn’t always clear. If you earn income from a side activity — or are considering turning a passion into a profitable venture — contact the office for help evaluating your situation and understanding the tax implications.

Common Growth Mistakes Small Businesses Make

A recent survey found that 45% of small businesses reported growth, but 78% wanted to grow. This January 2026 data from Intuit QuickBooks Small Business Insights suggests that many small businesses are struggling to achieve their expansion goals. Small businesses usually don’t have extra cash, people or time to absorb mistakes. One wrong move can strain cash flow, overwhelm staff or stall momentum. The good news? Many growth missteps are predictable and preventable.

Growing Too Fast Without a Plan

Growth is often viewed as the ultimate goal. More revenue, more customers and expanded products and/or services can signal success. But growth can easily become unsustainable.

One of the most common mistakes is expanding too quickly without a clear operational plan. A sudden increase in customers or projects can overwhelm staff, stress systems and weaken service quality. Before scaling, evaluate capacity, staffing needs and process efficiency. Phased growth, supported by documented procedures, helps reduce disruption and protect profitability.

Overlooking Cash Flow

Cash flow mismanagement is another common issue. The Small Business Insights survey found that 45% of small businesses reported cash flow problems.

Revenue growth doesn’t automatically translate into financial stability. Higher sales often lead to higher expenses, including payroll, software, inventory and marketing. Without careful forecasting, you could find your business short on working capital despite strong top-line performance. Regularly monitoring cash flow and building reserves before major investments can help avoid financial stress.

Staffing and Management Stumbles

Hiring decisions are critical to sustainable growth. Bringing on employees without clearly defined roles can create confusion and unnecessary costs. Conversely, delaying hires too long can lead to burnout and reduced productivity. Thoughtful workforce planning helps ensure that new team members contribute to measurable business outcomes.

Additionally, as your business grows, your leadership style should evolve. Owners who try to control every decision often become bottlenecks. Delegating responsibilities and empowering staff frees you to focus on strategy rather than daily tasks.

Moving Forward

Growth is about building a business that can generate more revenue without sacrificing stability, service or financial health. If you need assistance, contact the office.

Are College Scholarships Really Tax-Free?

Generally, scholarships received by degree candidates are tax-free to the extent they’re used for qualified tuition and related expenses. These include tuition, mandatory fees and required books, supplies and equipment. Amounts used for nonqualified expenses — such as room and board or travel — are taxable. If a scholarship requires the student to perform services, such as teaching or research, the portion paid for those services must be reported as income and is generally taxable. However, exceptions apply.

Any taxable portion of a scholarship must be reported on the student’s return. If it’s not attributable to payment for services, it might trigger the “kiddie tax,” meaning unearned income above a certain threshold is taxed at the parents’ tax rate. Understanding the rules is essential. Contact the office with questions.

2026 Business Mileage Rate Gets a Boost

Are you a business owner or self-employed? Do you drive for business purposes? If so, you’ll be happy to know that the IRS’s standard mileage rate for business driving in 2026 is 72.5 cents per mile (up from 70 cents in 2025). Meanwhile, medical and moving mileage rates are 20.5 cents per mile, while the charitable rate is 14 cents.

You can choose to deduct eligible vehicle expenses based on business use under the actual expense method or by applying the standard mileage rate, which simplifies recordkeeping. Bear in mind, however, that the IRS requires documentation in either case. Contact the office for help determining which approach delivers the greater tax benefit for your situation.

Why You May Want a Roth Account in Your Retirement Plan

If you already contribute pre-tax dollars to a traditional 401(k) plan or IRA, you may also want to contribute to a Roth version. You’ll forgo tax savings now because Roth contributions are made with after-tax dollars. But diversifying retirement contributions across account types can help lower income tax bills later. That’s because you’ll owe tax on distributions from traditional plans, but generally won’t on distributions from Roth accounts.

A Roth account can save taxes over your lifetime if tax rates rise between now and when you retire or your income in retirement is higher than it was when you worked, pushing you into a higher tax bracket. Contact the office to help determine whether this strategy makes sense for you.

Upcoming Tax Due Dates

April 15

Employers: Deposit nonpayroll withheld income tax for March if the month deposit rule applies.

Employers: Deposit Social Security, Medicare and withheld income taxes for March if the monthly deposit rule applies.

Calendar-year corporations: File a 2025 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004). Pay any tax due.

Calendar-year corporations: Pay the first installment of 2026 estimated income taxes, using Form 1120-W.

Calendar-year trusts and estates: File a 2025 income tax return (Form 1041) or file for an automatic five-and-a-half-month extension (Form 7004, six-month extension for bankruptcy estates). Pay any income tax due.

Household employers: File Schedule H, if wages paid equal $2,800 or more in 2025 and Form 1040 isn’t required to be filed. For those filing Form 1040, Schedule H is to be submitted with the return, so it’s extended if the return is extended.

Individuals: File a 2025 income tax return (Form 1040 or Form 1040-SR) or file for an automatic six-month extension (Form 4868). (Taxpayers who live outside the United States and Puerto Rico or serve in the military outside these two locations are allowed an automatic two-month extension without requesting an extension.) Pay any tax due.

Individuals: Make 2025 contributions to a traditional IRA or Roth IRA (even if a 2025 income tax return extension is filed).

Individuals: Make 2025 contributions to a SEP or certain other retirement plans (unless a 2025 income tax return extension is filed).

Individuals: File a 2025 gift tax return (Form 709) or file for an automatic six-month extension (Form 8892). Pay any gift tax due. File for an automatic six-month extension (Form 4868) to extend both Form 1040 and Form 709 if no gift tax is due.

Individuals: Pay the first installment of 2026 estimated taxes (Form 1040-ES) if not paying income tax through withholding or not paying sufficient income tax through withholding.

April 30

Employers: Report Social Security and Medicare taxes and income tax withholding for the first quarter of 2026 (Form 941) and pay any tax due if all of the associated taxes due weren’t deposited on time and in full.

May 11

Employers: Report Social Security and Medicare taxes and income tax withholding for first quarter 2026 (Form 941) if all associated taxes due were deposited on time and in full.

Individuals: Report April tip income of $20 or more to employers (Form 4070).

Copyright © 2026   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registeredtrademarks and service marks are the property of their respective owners.