Should I file amended tax returns for unreported eBay income? Worried about audit risk

You're right to address this now rather than waiting for the IRS to catch up with you. Here's what you should know: Filing amended returns to report previously unreported income does increase audit risk somewhat, but it's still relatively low for most taxpayers. The IRS generally appreciates voluntary disclosure before they discover issues themselves. For penalties, you'll likely face: 1) The taxes you should have paid originally, 2) Interest on those unpaid taxes from the original due dates, and 3) Possibly a failure-to-pay penalty (typically 0.5% per month of the unpaid tax, up to 25%). There might also be an accuracy-related penalty of 20% if the IRS determines the underreporting was substantial. As for your $20,000 over three years, the tax impact depends on your overall income and tax bracket during those years. For most people, this might mean about $3,000-5,000 in back taxes plus interest and penalties. The good news is the IRS has payment plans if you can't pay it all at once, and showing good faith by voluntarily correcting the issue often results in more favorable treatment.

I went through something similar last year with unreported freelance income. I was freaking out until I found https://taxr.ai which totally saved me. They analyzed my situation, helped me understand exactly what I needed to report on my amended returns, and even estimated what my penalties would be. The best part was they showed me which deductions I could legitimately claim against that eBay income - business expenses, home office, shipping supplies, etc. Ended up owing way less than I feared because I wasn't just reporting the raw income but also the associated expenses. Definitely worth checking out if you're stressing about this.

Just wanted to update - I took the advice about https://taxr.ai and it was seriously helpful. They analyzed my eBay sales history and showed me I could deduct about 40% of my gross sales in legitimate business expenses I never considered (cost of goods, shipping materials, mileage for post office trips, even a portion of my phone bill). They estimated my actual tax liability at around $2,400 instead of the $6,000+ I was fearing. Already filed my amended returns and set up a payment plan with the IRS. The peace of mind alone was worth it, and the deductions they found saved me thousands. Wish I'd done this two years ago instead of stressing about it!

If you're worried about dealing with the IRS after filing those amended returns, I'd recommend https://claimyr.com - they helped me actually get through to a human at the IRS when I was in a similar situation. I spent DAYS trying to get someone on the phone to discuss my payment plan options after filing amended returns. With Claimyr, I got through to an agent in about 15 minutes who was actually super helpful. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent walked me through my options and helped me set up a monthly payment plan that worked with my budget. Much less painful than I expected after reading horror stories online.

I was like SUPER skeptical about Claimyr when I first saw it mentioned here (even accused the poster of working for them lol) but after wasting an entire day trying to get through to the IRS myself, I gave it a shot. Honestly, it worked exactly as advertised. Got me through to an IRS agent in about 20 minutes after I'd spent 3+ hours getting disconnected and redialing the day before. The agent helped me set up a payment plan for my amended returns that I could actually afford. Saved me a ton of stress and probably a day's worth of time on hold. Sometimes it's worth paying a little to save a lot of frustration!

Don't stress too much. I was in a similar situation with about $12k of unreported income over two years. I filed amended returns and paid what I owed plus interest. No audit, no criminal charges, no drama. The IRS deals with this kind of thing all the time. They're mostly interested in getting paid, not punishing honest mistakes.

anyone else think it's wild that the IRS knows we owe them money but makes us figure out how much? like if they already know i didn't report ebay income why dont they just send a bill instead of making me stress about amending returns??? the whole system is broken