5 Tips To Avoid Tax Penalties During A Pandemic
If one thing is for certain, no U.S. citizen wants to voluntarily pay more to the IRS than they already owe. But despite the reality of having to pay hundreds, if not thousands of dollars in back taxes, many people fail to file their taxes on time. Despite these uncertain times, don't be one of these statistics and fork out more of your hard-earned income due to IRS penalties and interest.
Check out this tax guide for top tips on how to file your taxes like a pro.
The reality is even the most simple mistakes and inaccuracies can incur penalties from the IRS. Most mistakes are actually avoidable however through attention-to-detail and adherence to IRS tax rules and deadlines, especially. First thing's first, you need to gather the right paperwork before filing your taxes. The most important of which is a W-2 or 1099 form which reports your income.
You'll also need a 1095-A form if you're entitled to advanced premium tax credits with regards to health insurance. If you're filing for mortgage or student loan interest, you'll need a 1098 form, too. There's nothing more frustrating than beginning the tax filing process, only to find you have the incorrect or insufficient paperwork. So, before you delve into the process, do your homework and have all your documents ready to go.
Tax Guide Tips to Help You Take Control of Your Taxes
Every single year, millions of U.S. taxpayers under-report their income and the taxes they owe. As a result, this means the IRS is left to chase-up millions of dollars in tax penalties and interest. Here are a few tips to help you stay on top of your tax obligations, no matter the current state of your local economy:
1. Highlight Important Deadline Dates
The most important tax deadline date you must remember for the 2019 tax filing season is July 15, 2020. This is the deadline for filing your income taxes for the past year (2019). Make a point of highlighting this important adjusted deadline on your calendar. Highlight it in color, circle it in red -- do what you need to do make it stand out!
While filing your taxes may seem like a tedious task, it's 100% necessary. The IRS has a record of your earnings and copies of all relevant tax forms according to what you earned in 2019. If you fail to file on time, you can expect an additional 25% to your tax bill. Also, don't forget to sign your tax return. This is a very common oversight that can delay your tax filing, and incur penalties as well.
2. Ensure Accuracy In Your Record-Keeping
This is especially relevant to all self-employed people and business owners. If you intend to deduct items from your tax filing, such as wear and tear on your car, your records must be as accurate as possible. Remember that this process must be completed according to the new IRS rules to avoid penalties. In short, it's not wise to use ''creative bookkeeping'' when it comes to recording all your expenses.
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This is seen as a red flag by the IRS, who will then request in-depth detail about every single expense. You may also have to turn over all receipts for any other questions on your tax return. If you are unable to provide enough detailed information, you could incur an additional 25% accuracy penalty, plus interest on the entire amount.
3. Pay Close Attention To Your Math
If math is not your forte, then it may be wise to outsource your tax filing to a professional. Alternatively, it's wise to sharpen up your math skills and pay very close attention when filling out pen-and-paper tax returns. Math errors and oversights are also fairly common. But if a math error results in you having to pay less tax than is required, this could land you in hot water.
Basically, the IRS requires you to pay the additional amount in taxes, plus interest accrued. Make sure to check and re-check your calculations!
4. Be Specific With Home Office Deductions
This is related to those who operate a business from home. Whether it's a daycare service, private lessons, or a full home office operation, you can apply for tax deductions. However, the key to confidently applying for these deductions is in the specifics. The IRS stipulates that you must ''exclusively and regularly'' use a particular area of your home for business.
You can only deduct the exact area you use for business, no more than this. I.e. if you only use one half of a room for business purposes, only that half is relevant. If your tax deduction is found to be invalid, you could face a double-whammy of tax penalties. First, your taxable income may be increased because the deduction is taken on Schedule C. Second, you could also be charged self-employment tax at 15.3%.
5. Be Specific With Charitable Deductions
The good news is that you can be rewarded for your charitable contributions throughout the year. However, as you may have guessed, the devil is in the details. When donating goods, clothing, or food, you must receive and keep hold of an itemized slip from each charity or organization. The slip must list every item that's donated and its condition. Ideally, the estimated value of each item should also be recorded on the slip.
This information is important when applying for a tax reduction in case your tax return is audited. If the information is not specific enough, you could be liable for tax penalties or your tax return could be completely denied. The same 25% accuracy penalty may apply, as well as interest on the full amount. It's also wise to ensure the donation, charity, or organization meets all IRS guidelines before applying for this type of tax deduction.
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We hope this tax guide has been useful to you during this uncertain time and in the lead up to tax filing season. If you're looking for W-2 tax forms or a pay stub document then let's help you get started creating some pay stubs easily. As always, PayStubCreator is your go-to platform!
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