Posted by Fletcher Accounting and Tax Service Inc.

Significant Tips to Avoid IRS Penalties

Significant Tips to Avoid IRS Penalties

Sometimes, it is essential to focus on immediate issues instead of dreaming about latest tax packages that can affect your income. If you can understand the rules, there is no need to worry because you can avoid IRS penalties. Most recent statistics of internal revenue service shows a surprising number of taxpayers captivated by the penalties. These rules are tricky to understand, and people often pay fewer taxes during a tax year. If you want to avoid all troubles and penalties, it is essential to focus on the rules and complete your necessary homework. You can decrease the chances of errors with some homework, such as find a tax preparer.

Taxpayers have to pay most of their obligations by having taxes from particular payments of government, pensions and pay or they send quarterly tax payments. Keep it in mind that small-business investors, owners, and retirees with specific income are not subject to withholding tax. If you want to decrease your tax obligations, you must have a look at new tax rules before preparing your tax statements. You can hire an accountant to make your financial books.

It may be complicated to estimate the tax a taxpayer owe in the present year. You can get the advantage of available safety nets. Generally, taxpayers will not pay the penalty if they meet specific conditions. For instance, if they owe less than 1,000 dollars in tax with the tax return. Numerous taxpayers don’t pay the penalty by paying almost 90% of their tax during a tax year and 100% for taxpayers with high income. The limit may increase to 110% for taxpayers with higher-income. The defined income is over $150,000 or $75,000 for married people. A farmer and fisherman have to follow special rules. Here are some suggestions from tax professionals. 

Pardon Me

The IRS may be merciful for penalties in numerous cases. For instance, IRS declares “part or all” of your penalty for underpayment can be waived under particular circumstances. If the underpayment is because of a disaster, casualty or other incidents, it can be inequitable to levy a penalty.

If you qualify for any penalty waiver, you must check the website of IRS. You can’t expect more sympathy if you can see changes such as the law of ignorance and forgetfulness.

Changes in Life

Some people have to tweak their withholdings and estimated payment for different reasons, such as unanticipated changes. For instance, changes in life like divorce or marriage, a new job, running a business or getting other income without withholding may affect your tax obligation. If you are an employee, there is no need to estimate your tax payments if you have extra withheld tax from the paycheck. It can be an easy option for a person doing a part-time business or side job.

Withholding Exceptions

Income of numerous people is not subject to withholding. It can include self-employment earning, alimony, rent, dividends, interest income and capital gains. In many instances, the tax payment is estimated for the whole year. You can calculate your tax payments if your withholding from pension, salary or any other income don’t cover your annual income tax. Moreover, if you are unable to elect volunteer withholding, you can make estimated payments for taxes and taxable income like social security advantages and unemployment compensation.

Annualized Method

Several people don’t get money throughout a year in equal amount. For instance, a legal firm can wait until their closing months of a year for distribution of profits for the year to their partners. In numerous cases, the taxpayers are liable to make unequal payments of tax as per their income instead of four equal amounts.

Crunching Number

The withholding calculator on the website of IRS can be a useful tool for taxpayers. A taxpayer can calculate its taxes in a better way. You can use the guidance of publication 505 and Form 1040-ES.

Deadlines for tax payment can be tricky because there are quarterly tax payments. You can’t assume that the deadlines fall only at the end of calendar quarter. In the initial three months, the deadline for estimated tax payment is 15th April. For 1st April to 31st May, it is almost 15th June, even after two months. If you want to avoid IRS penalties, you must hire an accountant to understand the deadlines for tax payments.

   


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