Filing your taxes can be one of the most challenging things that you do every year. Not only is it a dull and tedious process, but there are also a lot of things that can go wrong. Missing deadlines and making calculation errors is only the start of your problems. In this article, you’ll learn about avoiding and mitigating potential IRS penalties that could otherwise leave you out to dry.
First and foremost, mark up April 15, 2019, on your calendar right away. That’s your hard deadline to send something to the IRS this year before you get into some problems. If you send in your tax return by that date, then you’re all set. It’s also worth noting that if the due date on a particular year lands on a holiday or a weekend, then you will have until the end of the next business day to send in your tax return. April 15, 2019, is a Monday, so that doesn’t apply, but it might in future years.
If you can’t make that date, then you’re going to have to send in Form 4868 to get a six-month extension. Keep in mind that you will have to pay interest on taxes you haven’t paid no matter the reason. Also, you may find yourself still needing to pay a late penalty. This penalty can range from 5% to 25% of the amount due depending on how late the filing ends up being. If you do have a valid explanation for filing late, then attach a document explaining it on your tax return when you do send it in.
Now you know to send in your tax returns on time, but you’re not out of the woods just yet. You’re still in for a world of hurt if your number crunching skills aren’t up to snuff. Primarily, understating your income in your tax return is an excellent way to become the IRS’s target. On top of having to pay the proper amount, 20% of the understated amount will be added as a penalty. All of this will also accrue interest over time, so make sure you get it all right from the start.
On the other side of the coin, you should also make an effort to not accidentally overstate your income either. Firstly, you don’t want to pay more taxes than is necessary. Secondly, it becomes quite difficult to prove that you have overstated your income after the fact. You’ll have to send an amended return and include documented evidence that there was some problem with the original.
Tax deductions can be beneficial to make sure that you get to keep the most of your hard-earned money. Of course, this is only true so long as you make sure to do it properly. Otherwise, you’re going to find your attempts at saving money be very counter-productive. For the most part, it just comes down to reading up on the rules and regulations surrounding whatever deductions you’re trying to get.
For instance, let’s take charity deductions for example. You could save up to 50% of your adjusted gross income every year when done correctly. Although, just like every other part of this process, the onus is on you to ensure the documentation is in order. When you want to get a charitable deduction, you have to make sure that the organization first qualifies for an IRS deduction. Donations to political organizations, sports teams, and workers associations, for instance, aren’t deductible. You’ll also need to get a canceled check or receipt to prove and specify the details of the donation.
Now we know some ways in which we can avoid IRS penalties, but let’s say that we get a penalty anyway. Depending on the circumstances in which you were given these penalties, you may be able to apply for penalty relief. There are a few different kinds of assistance that are available, so let’s give them a rundown.
Online Relief Tool
The IRS website has an online self-help tool that will guide you through the process of getting the relief that you need. The online tool itself will only really apply if you qualify for reasonable cause relief or if you were misled by IRS staff. In any other case, the tool will instruct you to file an appeal instead.
The burden of taxes is already a heavy weight placed on everyone. There’s no need to make things even harder for yourself than it needs to be. However, you have to do it, so make sure that you know what you’re doing and get the job done right. In the case that taxes and penalties are piling on top of one another, there’s still help for you. We here at Solvable have many articles to help you understand your debt, as well as reviews of debt relief companies to make sure you get the help you need.