April is one of the most stressful times for most people because that means it is tax time. One little mistake could have you facing IRS penalties that in most cases could have been avoided. These penalties are no joke; they can be anything from large amounts of money to jail time. To help you avoid those penalties, here are a few tips to keep in mind.
The most obvious and easiest thing is to make sure you file your tax return on time. Even if you do not have the money to pay any taxes that you owe, that return needs to be in when it is due. If you are more than sixty days late, you will face a penalty.
There are times when something does happen that prevents you from filing on time. If you find yourself in that situation, you can request an extension to avoid the late filing fees. You can get an automatic extension until October, giving you plenty of time to get things in order and then file.
Pay your taxes on time is important. This sounds easy enough, but that is not always the case. Each month your payment is late, the penalties add five percent onto the unpaid taxes, and that can increase once the IRS notices. You can avoid these penalties by paying at least ninety percent of your taxes due on time.
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.
There are ways to abate penalties if you have a reasonable cause. Sometimes you can file to have underpayment and filing penalties removed or abated. There are several reasons that the IRS will accept, but be prepared to show proof for your reasons. Some things they may accept are death of a close family member or a divorce. If your records were destroyed, which was out of your control or a natural disaster struck. Even a long period of unemployment or incarceration could be good 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.
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