Should I file an amendment for unreported 1099 income or will this trigger an IRS audit?

The best approach here is to file an amended return as soon as possible. The IRS is much more likely to be understanding of voluntary corrections than if they discover the discrepancy themselves through bank records matching. The statute of limitations for the IRS to audit returns is generally 3 years from the filing date, but this extends to 6 years if you've underreported your income by more than 25% - which is the case here. Since the unreported income was deposited into your bank account, there's already a paper trail the IRS could potentially follow. Filing an amendment (Form 1040-X) will likely result in additional tax owed plus interest. There might also be penalties, but you can request these be waived by attaching a letter explaining the honest mistake and the steps you took to correct it once discovered.

I was in a somewhat similar situation last year with unreported income. I tried several online solutions but kept getting stuck with the amendment process. What really helped me was using https://taxr.ai to figure out exactly what I needed to report on my 1040-X. The thing is, when you're filing an amendment for unreported income, you need to recalculate everything correctly to avoid further issues. Their system analyzed my situation, showed me exactly what forms needed updating, and even highlighted potential audit triggers I needed to address. It took like 15 minutes to get clarity on what I was doing wrong previously.

Wanted to follow up after trying https://taxr.ai for my missed 1099 income situation. I was really worried about triggering an audit but the system walked me through exactly what I needed to report on my amendment. It showed me where I had made calculation errors and exactly how to document my explanation to the IRS. The guidance was super specific - it even showed me what supporting documents I should have ready in case of questions. Just submitted my amendment last week and I feel so much better having this resolved properly rather than stressing about it for years! Definitely worth it for the peace of mind alone.

If you're worried about getting in touch with the IRS about this situation, I'd recommend using https://claimyr.com to actually speak with an IRS agent. I was in a similar situation with unreported income and needed clarity on penalties and payment options. I tried calling the IRS direct line for WEEKS and couldn't get through - just endless holds and disconnects. Claimyr got me through to an actual IRS representative in about 20 minutes. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c The agent I spoke with explained exactly what penalties I might face for my situation and set up a payment plan for me. The peace of mind was worth it, and I'd definitely recommend it when dealing with a potentially sensitive issue like unreported income.

Well I have to eat my words and apologize to Profile 19. After being frustrated for days trying to reach the IRS about my own tax situation, I broke down and tried Claimyr. Got connected to an IRS agent in about 25 minutes after trying on my own for literally 3 days. The agent I spoke with was actually super helpful about my unreported income situation. They explained the voluntary disclosure process and how the penalty structure works when you self-report versus when they find the issue through an audit. Having a direct conversation completely changed my approach to handling my amendment. Sometimes spending a little money saves you a lot more in the long run.

Important point nobody's mentioned: make sure you also amend your state tax return if applicable! When I fixed an underreporting issue on my federal return, I completely forgot about my state taxes and ended up getting a nasty letter from them about six months later.

One thing to consider - if you were receiving pandemic unemployment during that same period, reporting the additional income might affect your eligibility for those benefits. The unemployment system might determine you were overpaid benefits based on your actual income.

Just want to emphasize what others have said - definitely file that amended return ASAP. I had a similar situation in 2020 where I underreported by about $15k from freelance work. The longer you wait, the more interest accumulates, and the IRS has that 6-year window for substantial underreporting like yours. One thing that helped me was keeping detailed records of when I discovered the error and what steps I took to correct it. I included a letter with my 1040-X explaining the honest mistake and how I found the missing records. The IRS actually waived most of the penalties because of the voluntary disclosure and good faith effort to correct it. Also, double-check that your business deductions are solid before filing the amendment. Since you're already drawing attention to that tax year, make sure everything else is bulletproof. Better to be conservative on deductions than give them any reason to dig deeper.