Dear TaxGuru,

I have already filed my 2005 tax return and just realised that I had omitted to include a 1099-Misc income from a consulting project. What must I do? I am concerned that I might be audited and have to pay a huge tax penalties.

Can you please advise me what my are my options?

Tks...

Wow, I see the sight is improving very well, especially I like the free tax tips section.

Dear Awkan,

First, thank you for your kind comments regarding the website. The IT administrator definitely has done a superb job in this area!

Now, to answer your question, I would recommend that you voluntarily file an amended tax return (Form 1040X) along with a detailed explanation as to why you are filing this amended tax return. If you feel uncomfortable doing it yourself. I suggest that you go to the nearest CPA and have him prepare a 2005 amended tax return. This should cost you about $175 to $200 depending on your area.

Omission of income can definitely result in substantial penalties if this amount is material to the overall income. Since, this income reported on a 1099-Misc form is simultaneously reported to the IRS. Hence, it is better to file an amended tax return and report this additional income, as it is easier to negotiate an abatement of any potential penalties that may have resulted in non-inclusion of this income.

Additionally, I would file this immediately without delay as well before you get a notice from the IRS.

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