How to Avoid Common IRS Tax Penalties
Safely moving through tax season is a goal all businesses and individuals strive for, yet common mistakes can happen along the way. These mistakes can result in the IRS hitting you with a pricey tax penalty, resulting in you having to pay more back to them.
Typically, the main reason tax penalties occur is because taxpayers aren’t aware of specific rules. With the lack of knowledge in this area, taxpayers are hit with fines that could have been avoided. In order to ensure your tax season is as seamless as possible, we’ve compiled three common tax penalties you should know and how they can be solved.
Penalty to File Tax Return
Filing your tax return correctly and before the deadline is vital. Otherwise, if you don’t, you’ll be hit with an unwanted tax return penalty. Each month you are late will result in a charge being placed on your account for up to five months. The best way to ensure your tax return is filed on time is to know the deadline date. Typically, the deadline is April 15th, but you should regularly check to ensure it hasn’t changed. If you need help figuring out if your tax return is accurate and with filing assistance, seek a professional CPA & financial advisor’s guidance.
Penalty to Pay Taxes
Sometimes you don’t have enough money to pay your taxes, but this should never deter you from filing your tax return. Failing to file your tax return results in a higher tax penalty than if you waited until you had enough financial resources to pay the stated tax amount. Although you will receive a penalty regardless of both circumstances, you should file your tax return even if you send a small or no payment to the IRS.
One of the best ways to prevent you from getting into trouble with the government is by contacting the IRS and setting up installment arrangements. This arrangement will allow you to request a payment plan to pay your tax payments within an extended deadline. While you will have an added fee placed on your tax bill until the balance is paid in full, you’ll stop the government from initiating a collection action against you.
Penalty to Pay Estimated Tax
If you are a W-2 employee, your employer withholds income tax on your behalf, which results in you not having to worry about estimated tax. However, if you are not a W-2 employee and receive income where withholding is not deducted, you are legally required to estimate your taxes owed every quarter.
A common occupation that has to estimate taxes are those in the “gig” economy. If you have a freelance job, perform independent contracting work, or are a retiree who relies on Social Security and other accounts for income, you’re required to pay estimated taxes. Failure to do so will result in a tax penalty being placed on your account and can add up very quickly. The right way to ensure your estimated taxes are error-free and paid is to hire the help of a CPA & financial advisor. The individual will help you estimate correct tax amounts quarterly and inform you when the payments are due. As a result, you can avoid any tax penalties from adding up in your account.
Hire Tobin & Collins for NJ Tax Planning & Preparation
Do you need assistance in tax planning and preparation? The CPA and financial advisors at Tobin & Collins are experts in tax law. We can create strategies and solutions for clients to resolve any issues, including tax penalties. Contact us to begin your financial journey!