Normally, taxes are due on April 15th. However, like last year, the due date will be a few days later. For 2017, the due date that you need to circle on your calendar or set a reminder on your phone is April 17th. Each tax season, people get hit with penalties that can be completely avoidable. Here are the top penalties that you can avoid with proper planning.
Not Filing All Together
Anyone that has made enough money that requires you to pay taxes but fails to file by the due date will face a non-filing penalty. There are two main penalties as explained on the IRS website. The first is a penalty for late filing and the other is for paying late. If you file your tax return 60 days after the due date or the extended due date, then the minimum penalty will be $205. However, if you owe less than $205, then it is 100% of the unpaid tax. The penalty can end up being 5% of their unpaid taxes each month up to 25%. The penalty for late payment is .5% of the individual’s unpaid taxes per month, which can also build up to 25% as well.
Documenting Your Mileage Rates Accurately
A person that is self-employed and intends to deduct all of the wear and tear on their vehicle will need to do so in agreement with new rules. To avoid any penalties, you need to keep an accurate record of everything. If your off the cuff bookkeeping triggers any alerts for the IRS, then you will be required to provide a log of every mile that you claimed on your return and all receipts for any other discrepancies. If you fail to provide enough satisfactory evidence, then you will be hit with a 25% inaccuracy penalty on top of the additional tax and then the interest on the entire amount according to “5 IRS Penalties You Want To Avoid.”
Underpaying of Estimated Tax
The U.S. tax system is a pay-as-you-go system regardless if you work for an employer or for yourself. Basically, you are required to pay taxes on money that you earn throughout the year. An employer will usually make these payments for you on your behalf. However, if you are self-employed, then you are required to pay quarterly taxes based on the amount of income you earn. If you expect to owe more than $1,000 on taxes then you are required to pay your quarterly taxes. To avoid this penalty, you need to have paid the smaller of these two: at least 90% of your income for the year or 100% of the taxes you owed from the previous year. If you find that your income fluctuated a lot throughout the year, then you can avoid the penalty by using the annualized installment method. The penalty can also be avoided if you had no tax liability for the previous year according to “Top 3 IRS Penalties and How to Avoid Them.”
With proper planning and documentation, all of these tax penalties are avoidable. If you are unsure of how to handle your current situation, then it is always advised to seek help from a professional. You do not want to be hit with a big penalty due to your own inaction. Get ahead of the game rather than wait until the last minute.
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