April 2026

What You Should Know If You Receive an IRS Notice

Notices from the IRS are more common than many people think. Each year, the IRS sends out millions of letters to clarify details, confirm updates or request additional documentation. While receiving a notice can feel stressful, most can be resolved quickly when you have the right information and guidance.

5 Common IRS Notices Explained
Every IRS notice includes a reference number, such as CP49 or CP14, which identifies the issue and helps determine how to respond. Below is a summary of the most common notices and what to do if one shows up in your mailbox:

1. CP12 (including CP12, CP12E, CP12F, CP12G, CP12N and CP12U), refund adjustment. A CP12 notice is issued when the IRS corrects a math error or similar issue on your tax return. This adjustment may increase or decrease your expected refund. If you agree with the correction, no action is needed. If you disagree, contact the IRS using the toll-free number on the notice by the specified deadline.

2. CP14, balance due. This notice indicates that you owe taxes. It’s important to address it promptly. You may pay the balance in full, consider installment options or seek assistance if you believe the notice is incorrect. Ignoring it could lead to penalties, interest and collection actions.

3. CP49, refund applied to a debt. This notice explains that your refund was used to pay some or all of an outstanding tax liability. Review how the refund was applied. Any disputes are typically handled with the agency that received the funds, not the IRS. If you filed jointly, a spouse who isn’t responsible for the debt may be able to recover their portion by filing Form 8379, “Injured Spouse Allocation.”

4. CP2000 series, proposed changes to your return. This notice is sent when the IRS compares your return with information reported by third parties, such as employers or financial institutions, and identifies a discrepancy. It is not a bill, but a proposal to adjust your return. Review it carefully and respond by the deadline. Follow all instructions, include any requested documentation and indicate whether you agree or disagree. If you do not respond, further notices or a bill may be issued.

5. Letter 4883C, identity verification. If the IRS suspects potential identity theft, it may pause processing your return until your identity is verified. Call the Taxpayer Protection Program hotline as instructed in the letter. Be prepared with the tax return mentioned in the notice, a prior-year return (if available), and supporting documents such as Form W-2, Form 1099 and Schedule C. If you did not file the return referenced, contact the IRS immediately, as this may indicate identity theft.

As a reminder, the IRS will never contact you by email, text or phone to demand payment. Legitimate notices are always sent by mail.

IRS Criteria for Distinguishing Hobbies From Businesses

Turning a favorite activity into a source of income can be fulfilling, but it also raises an important tax question: Is it a hobby or a business? The distinction matters because each is subject to different tax rules.

All income must be reported on your tax return, whether it comes from a hobby or a business. However, related expenses (and losses) are deductible only if the activity qualifies as a business.

What the IRS Considers
The IRS determines whether an activity is a hobby or a business by evaluating several factors. It looks at the overall facts and circumstances, and no single factor carries more weight than the others.

One consideration is whether you operate the activity in a businesslike way. This includes keeping thorough and accurate records, monitoring income and expenses and making efforts to improve profitability. The amount of time and effort you invest is also important — particularly if it shows an intent to earn a profit rather than simply engage in a leisure activity.

Your financial situation is another factor. If you depend on the income from the activity to support yourself, it’s more likely to be classified as a business. If the activity is mainly funded by other income sources, it may be treated as a hobby. Personal motivations, such as engaging in the activity primarily for enjoyment or relaxation, may weigh against business classification.

A history of profits or losses, along with future earning potential, is also significant. The IRS considers whether losses are typical for a startup (especially if the activity began recently) or due to circumstances beyond your control. In such cases, the activity may still be viewed as a business. Experience and prior success in similar activities can further support business classification. In addition, the expectation of future profit from the appreciation of assets used in the activity can indicate a profit motive.

Tax Treatment of Related Expenses
In the past, taxpayers with hobby income could generally deduct certain related expenses as miscellaneous itemized deductions, subject to a 2% adjusted gross income (AGI) threshold. The Tax Cuts and Jobs Act suspended these deductions for tax years 2018 through 2025. The law commonly referred to as the One Big Beautiful Bill Act, enacted in July 2025, made this suspension permanent. As a result, if an activity is considered a hobby, expenses related to it aren’t deductible. However, all income must still be reported.

If the activity is classified as a business, related expenses are deductible. If the business generates a loss, that loss can be used to offset other income in the same tax year, subject to applicable limitations.

Common Growth Mistakes Made by Small Businesses

A recent survey revealed that 45% of small businesses experienced growth, while 78% expressed a desire to grow. This January 2026 data from Intuit QuickBooks Small Business Insights indicates that many small businesses are having difficulty reaching their expansion goals. Most small businesses lack extra cash, staff or time to absorb mistakes. A single misstep can strain cash flow, overburden employees or slow momentum. The good news? Many growth mistakes are predictable and avoidable.

Growing Too Fast Without a Plan
Growth is often seen as the ultimate objective. Increased revenue, more customers and expanded products and/or services can all signal success. However, growth can quickly become unsustainable.

One of the most frequent mistakes is expanding too rapidly without a clear operational strategy. A sudden surge in customers or projects can overwhelm employees, strain systems and reduce service quality. Before scaling, assess your capacity, staffing requirements and process efficiency. Gradual growth, supported by well-documented procedures, can help minimize disruption and maintain profitability.

Overlooking Cash Flow
Poor cash flow management is another common challenge. The Small Business Insights survey reported that 45% of small businesses experienced cash flow issues.

Revenue growth doesn’t always result in financial stability. Increased sales often bring higher expenses, including payroll, software, inventory and marketing costs. Without careful forecasting, your business may face working capital shortages despite strong revenue performance. Consistently monitoring cash flow and building reserves before making major investments can help prevent financial strain.

Staffing and Management Stumbles
Hiring decisions play a key role in sustainable growth. Adding employees without clearly defined roles can lead to confusion and unnecessary expenses. On the other hand, delaying hiring too long can result in employee burnout and lower productivity. Strategic workforce planning helps ensure new hires contribute to measurable business results.

As your business expands, your management approach should also adapt. Owners who attempt to oversee every decision can become bottlenecks. Delegating responsibilities and empowering employees allows you to focus on strategic priorities instead of day-to-day operations.

Are College Scholarships Really Tax-Free?

In general, scholarships received by degree candidates are tax-free as long as they’re used for qualified tuition and related expenses. These include tuition, required fees and necessary books, supplies and equipment. Amounts applied to nonqualified expenses — such as room and board or travel — are considered 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 typically taxable. However, exceptions may apply.

Any taxable portion of a scholarship must be included on the student’s tax return. If it isn’t related to payment for services, it may be subject to the “kiddie tax,” meaning unearned income above a certain limit is taxed at the parents’ tax rate. Understanding these rules is important.

2026 Business Mileage Rate Increase

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

You can choose to deduct qualifying vehicle expenses based on business use using the actual expense method or by applying the standard mileage rate, which makes recordkeeping easier. Keep in mind, however, that the IRS requires proper documentation in either case.

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 might also consider contributing to a Roth version. You won’t receive immediate tax savings because Roth contributions are made with after-tax dollars. However, diversifying your retirement contributions across different account types can help reduce income taxes later. This is because distributions from traditional plans are taxable, while distributions from Roth accounts are generally tax-free.

A Roth account can help lower taxes over your lifetime if tax rates increase between now and retirement or if your income during retirement is higher than it was while you were working, potentially placing you in a higher tax bracket.

Stay on Top of Tax Deadlines & Compliance

Staying on top of tax deadlines and compliance is one of the most important habits a small business owner can develop—especially at the start of a new financial year. April offers the perfect opportunity to reset your financial systems, organize your records and build a strong foundation for the months ahead.

Missing deadlines or filing incorrect returns can lead to penalties, interest charges and unnecessary stress. It can also disrupt cash flow and create avoidable complications. Taking a proactive approach helps you stay in control and focus on growing your business with confidence.

Begin by reviewing and finalizing your financial records from the previous year. Reconcile bank accounts, verify income and expenses, and ensure all supporting documents are complete. This process not only prepares you for accurate tax filing but also provides a clear understanding of your financial position.

Next, create a tax calendar that includes key deadlines for income tax, GST, TDS and payroll obligations. Having a clear schedule reduces the risk of missed filings and allows for better cash flow planning.

It’s also important to stay updated on any changes in tax rules that may affect your business. Being informed ensures accurate reporting and helps you take advantage of available deductions.

Working with a tax professional can further simplify compliance and identify tax-saving opportunities.

By staying organized in April, you set yourself up for a smoother, more efficient financial year.