by Andy Thompson, JK Harris Tax Consultant
While I cannot speak for the rest of the team of tax consultants here at JK Harris & Company, I am providing this list based on my own personal experience. Here are the top ten reasons (or causes) clients make an appointment to see me for back tax debt.
1. Earned income tax credit – Just because you claim a child on your return does not mean you qualify for the EITC. Don’t claim the EITC unless you know you are entitled to it. Be sure to do your homework and use the IRS’ EITC calculator.
2. Raising your exemptions – on your W-4 to have less taxes withheld. If you think money is tight now, how will you pay a large bill at tax time?
3. Withdrawing retirements funds – The 10% penalty paid is not equivalent to the taxes due. Making this withdrawal may put you in a different tax bracket.
4. Is your spouse forgetful? Double check that your spouse really did submit the tax returns.
5. Self employed or not? Review what it means to be self employed, as there are requirements to meet. If you are, be sure to pay your estimated taxes on a quarterly basis.
6. Got supporting docs? You must have supporting documents for all claimed expenses. Estimating your expenses will not hold up should you get audited.
7. Larger refund than usual? If the local guy all your buddies go to gets everyone large refunds, he may be setting you up for an audit and tax problems. When the IRS system sees a pattern emerge, all of that tax preparers returns may be audited.
8. Did you inherit a windfall? If your inheritance is from a retirement account, taxes are due upon withdrawing the money.
9. Did you default on an installment agreement? If you agree to an installment agreement or IRS payment plan, you must pay it. I have seen clients who set this up with the IRS on their own but were nervous about dealing with the IRS. Often times, they committed to a payment above their means, then end up unable to make the monthly payments.
10. Submit your returns, even when you cannot pay. By filing your tax returns, you will avoid larger penalties. If you do not file your return, you are penalized with the failure to file and failure to pay fines. Filing your return and paying what you can will help reduce the amount you are penalized.