It is not easy to file your own taxes. In fact, when you run a business or have more than just the standard deduction, you will run into problems if you make one or two slight errors. While this is true, most issues are largely avoidable provided you know what you are doing and what to avoid. With this in mind, here are four tax penalties and how to avoid them.
Underpayment of estimated tax
Now, when filing, some people will need to pay their taxes as they go. This is often the case for retired people or entrepreneurs who run their own companies. For this reason, it is wise to pay the right amount as the IRS will penalize a consumer severely. Of course, if you have sporadic income, you can pay in four equal amounts to avoid penalty. Either way, when paying too little in taxes, you are going to have to deal with the repercussions. For this reason, if you are in a constant battle with the IRS over this, you should consider hiring a professional who can make the estimated tax payments on your behalf. Otherwise, if this problem reoccurs, you will have to pay the penalty again.
Believe it or not, even with all the technology available, many still file too late. When this happens, you will have to pay a penalty in many cases. Other times, if you did not make enough money or paid all your taxes through your employer, you may skirt by untouched. With that being said, it is wise to file on or before the filing deadline. Remember, while it is easy to procrastinate, it is not a wise thing to do too much as it is costly to file too late. Instead, when you receive your tax documentation, you should do a quick estimate on how much you will owe. Then, if you will receive a refund, you should file quickly and get your money. On the other hand, if you owe, you should fill out the forms and send them in the last possible day.
Home office deductions
While working from home, you can write off some home office costs. However, this is a tricky subject and it is wise to talk to a CPA who can advise you on your best course of action. At the same time, when using this deduction, you should remember to save your receipts and keep everything in perfect order. You must realize that the IRS cracks down on this, and you should keep perfect records. At the same time, if audited, you should be prepared to explain your situation and fight for your rights as an agent will listen if you provide the right information.
If you make a huge math error, you may end up paying some more to the IRS. If you use a program or online-based filing service, you should not experience any issues. Of course, if you use a pen and paper, you should double-check your math and ensure there are no issues. Luckily, if the error is minor, you should only have to send in the extra money.
Without a doubt, people make mistakes when dealing with the tax authorities. If you can avoid these four common pitfalls, you can avoid any penalties.