Of all the types of debt Americans can get themselves into, tax debt is the worst. The IRS has steep penalties and interest rates, which can quickly escalate a tax debt into a large and often times, overwhelming liability. The best thing you can do to avoid having to seek out JK Harris or another tax professional to assist you, is to follow these six steps to avoid accruing tax debt, interest and penalties.
1. Adjust your withholdings – One of the most common mistakes taxpayers make is not ensuring the right amount of taxes is being withheld from their paycheck. Withholdings can be changed at any time of the year and typically it takes less than five minutes to do. Not sure what you should have withheld? The IRS offers a withholding calculator (link: http://www.irs.gov/individuals/article/0,,id=96196,00.html?portlet=4) on their website to help you determine how much you should be withholding.
2. Claim only what you are entitled to – Don’t get greedy and try to claim credits or deductions you are not entitled to. If you are not sure, check out www.irs.gov for information on any credits or deductions you think you may qualify for, or see a tax professional for assistance.
3. Make your estimated tax payments – This is one of the most common reasons we see clients who come to us with tax debt.. Many self-employed folks fail to make their estimated tax payments on a timely basis and this can quickly escalate into a cycle of late payments, interest and penalties. The IRS has taken notice of this and has shifted the focus of audits to small business owners. Don’t add an audit to your list of tax woes!
4. Pay tax debt as soon as possible – If at any time you are unable to pay your tax debt in full, act quickly to set up an Installment Agreement. This will allow you to pay back the debt in affordable monthly payments. You can do this yourself, or hire a tax representation firm to assist you.
5. If you are not confident, seek professional help – If you are not completely confident your tax return is accurate, seek a tax professional to check it over. Not only can they assist you in making sure you don’t claim any credits or deductions you aren’t entitled to, they might be able to find errors which result in a lower tax liability or even a refund.
6. File your return on time, even if you cannot pay – It is always much better to file a return and pay later (preferably through an Installment Agreement as mentioned above) than to face the failure to file and failure to pay penalties. If you do not file a return, the IRS will file a Substitute For Return on your behalf. This often results in you being assessed thousands of dollars more than you actually owe because the IRS does not take into consideration any exemptions and it files you as single. While this is correctable, it is time consuming and can be very frustrating.
Remember that it is always better to avoid tax problems from the start. If you find yourself facing a tax debt you don’t know how to handle, call JK Harris. We can show you what options you have to resolve your tax problems.