“Tax penalty” may be one of the most feared phrases in the English language, but, in many cases, it can be easy to avoid. Check out our top tips for keeping your account free of tax penalties!
- File on time. Filing late can earn you a 5% penalty for every month (or part of a month) your tax return is overdue. This penalty is capped at 25% of the tax owed. The easiest way to avoid this hefty penalty is to simply file your return by the deadline.
- Pay on time. Unpaid taxes accrue penalties at a rate of 0.5% per month up to a total of 25% of the tax owed. Paying as soon as possible helps limit the size of this penalty.
- Include all ID numbers. Missing or incorrect ID numbers for taxpayers, dependents, spouses, or others included as part of your tax return will incur penalties. Each missing or incorrect number will generate a tax penalty of $50, so double-check all SSNs for accuracy before you file.
- Pay estimated taxes. The U.S. tax system is “pay-as-you-go,” which means you’re responsible for paying your income tax, FICA, and other taxes through the year. Employees pay tax via payroll withholdings, but self-employed individuals and others with income not covered by withholdings must pay estimated tax to avoid tax penalties. If you owe estimated taxes, ensure you make the required quarterly payments to prevent a penalty from developing down the road.
- Report your tips. If you fail to report tips to your employer, you could be subject to a tax penalty of 50% of the Social Security tax on those unreported tips. Make sure to document and report all tips to avoid this steep penalty!
Want to learn more about preventing tax penalties or resolving tax problems if they do develop? Call Taxation Solutions, Inc. today to learn more.