When tax time rolls around, many people find themselves scrambling and stressing. The fear is always doing something wrong and then having to face IRS penalties. Something no one wants to do considering it can cost a large amount of money or even mean going to jail. Here are a few things to keep in mind to help you get through this stressful time penalty free.
The most important part of tax time is to actually file your taxes, and file them on time. Even if you owe money and cannot pay, it is important to get your tax returns in when they are due. If you are later than sixty days on filing, you will have to face a penalty.
When you find that you are not going to be able to file on time, you can request an extension. By completing the request forms, an automatic extension will be given to you that will last until October. That gives the chance to get things together and get your returns filed, while at the same time avoid any late filing fees.
When you owe taxes, paying them promptly will avoid late payment penalties. When you find that you cannot pay in full, if you send in at least ninety percent of what you owe, you will also avoid penalties. However, each month that your payment is late means that five percent is added onto your unpaid taxes, but that can increase once the IRS discovers you are late.
If for whatever reason, you just cannot pay your taxes, you can request an installment agreement with the IRS. This agreement will allow you to pay off the taxes that you owe over a period of monthly payments for as long as the agreement is set up for. The big benefit to this is that although you will still have failure to pay penalties, these penalties could be reduced by half with the agreement in place.
Being audited is something many people fear. The IRS can choose to audit you for any reason they want, usually it is because they suspect discrepancies in your returns. That is why it is important to keep clear and accurate records, and to be honest on your returns. An accuracy-related tax penalty can be given if they suspect that you have underpaid taxes. This also means you cannot exaggerate expenses or deductions when you file.
When you find that you are penalized, a legitimate reason can reduce or remove those penalties. The IRS will accept some excuses on why you did not file or pay on time, but proof is going to be necessary. Some reasons they may accept to decrease or remove penalties is a death of a close family member, divorce, destroyed records that was beyond your control, or natural disasters. Sometimes, even a long stretch of unemployment or incarceration will be acceptable reasons.
When tax time rolls around, be prepared. If you suspect you are going to have a problem, you can do something about it. The IRS will provide you several solutions to help you avoid or decrease penalties that you may have coming. The easiest way to avoid having to spend more money than necessary is to keep accurate records, be honest, and file and pay on time.
