How Your Family Can Avoid a Financial Tax Penalty
Saturday, November 21, 2020, 6:00 AM | Leave Comment
Governments have collected taxes for centuries. It’s the way they were able to maintain their infrastructure and provide services to their citizens.
It’s not any different in the United States of the 21st century.
In 2017, 143 million taxpayers filed their returns on or before April 15th. They reported close to two trillion dollars in individual income taxes.
The monies collected helped maintain ongoing operations in the U.S. Unfortunately, not every family files the proper paperwork or reports the correct information. This results in a financial tax penalty. This can be a few hundred to a few thousand dollars, and it can take a bite out of a family’s budget.
There are ways your family can avoid a financial tax penalty.
Here are a few examples.
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File Your Taxes On Time
In most years, April 15th is the deadline to file your federal and state income taxes. This gives families over three months to prepare their records and complete the necessary paperwork. Unfortunately, circumstances do arise that prevent some from filing on time. To avoid a financial tax penalty, families should request a filing extension. Normally, filers are given until July to complete their information. However, the extension doesn’t increase the amount of time to pay owed taxes. That still needs to take place on April 15th.
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Don’t Underpay
Normally, employees fill out a W4 form when they start a new job. This is known as an Employee Withholding Certificate. It details the amount of money to take out of their gross pay for taxes. It ensures you don’t pay too much or too little to the government. However, this is only for your main job. It’s not related to the earnings you make from speaking engagements, book sales, for freelance jobs. In those situations, families need to determine the proper amount of withholding taxes they need to put away. If they don’t take out enough or any at all it results in an underpay for the year.
In turn, the family receives a huge tax penalty. This can be avoided by reaching out to a CPA or a tax law firm like Enterprise Consultants Group for more information. They can help determine the withholding and social security taxes required for each side gig.
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Speak With An Attorney
If you feel your penalty was incorrectly calculated, you might be entitled to an IRS first time penalty abatement. Though this is something you can do on your own, the best way to make certain the penalty is erased is to work with a tax law firm.
The attorneys at these locations are subject matter experts (SMEs) on tax policies. Plus, they’ve helped other families with similar issues. Thus, they know what’s needed to void the monetary fine and keep your record clean.
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Use A CPA
Similar to tax attorneys, certified public accountants (CPAs) are also SMEs when it comes to tax laws. That’s why it’s a good idea to utilize their services. What they do is different from an attorney. They look at your paperwork at the time of filing. If they see discrepancies, they address them and then find ways to mitigate the potential cost to your family. This is usually done through a careful review of paperwork and itemization of your tax filing.
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Save All Tax-Related Paperwork
At some point in your tax-paying life, you might be audited. This isn’t because they found something suspicious. Rather, it occurs through random sampling. When it does happen, they might discover an underpayment that results in a financial penalty. This is why you need to save all tax-related paperwork for a minimum of three years. If you believe the penalty is invalid, you can present your proof to a tax lawyer or directly to the IRS. It can save your family a large sum of money.
In the end, the way your family avoids a financial tax penalty is preparation. Don’t destroy any tax-related documents, especially if they’re connected to an abnormal filing year.
Conclusion
Furthermore, determine the necessary withholding amount for freelance jobs. You might not owe anything from a W4-based employee but you’ll end up using those savings for side gigs. If you still incur a financial tax penalty make sure you seek help.
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