Three Tax Woes and How to Survive Them
The tax deadline is days away. But if you’re going to be late in filing, can’t pay all of what you owe, or have the fear that you might be audited, don’t panic! We’ve got you covered with some smart ways to handle these three, potentially scary scenarios.
Of course, if you owe, make every effort to file as soon as possible to avoid penalties and interest. But the good news is, if you’re owed a refund, there’s no penalty for filing late. More good news: For those who qualify, Free File is still available on IRS.gov through Oct. 15 to prepare and file returns electronically. There’s more: If you have a history of paying on time and are missing this year’s deadline, there’s always Penalty Relief.This provision, called First Time Penalty Abatement, allows you to qualify if, a) You haven’t previously filed a return, or if you have had penalties in the past, you have no penalties for the three years prior to filing this year; b) You filed all currently required returns or filed an extension; c) You have paid, or arranged to pay any tax due. See? There’s hope.
Can’t Pay All of What You Owe?
Due to the Tax Cuts and Jobs Act, you might find that you owe because you didn’t change your withholding, as well as the fact that the law eliminated exemptions, increased child credits and limited popular deductions, to name a few of the changes. Not to worry. If you’re stuck and need help, you’ll be relieved to know that you can apply online for a Payment Plan. While you’re settling your debt, you can view your balance online and pay with IRS Direct Pay or by a debit or credit card.
If you need further assistance, consult a professional. If this is any consolation, the Government Accountability Office estimated in a report last summer that about 30 million workers had too little withheld from their paychecks. While this increased their take home pay, it also increased their tax liability. Again, consult a tax professional if you have questions, but remember: there is light at the end of the tunnel. You will get out of this.
If You Get Audited
The truth is, unless your income is super high, you have less than a one percent chance of being audited. That said, if this does happen, you’ll want to be prepared. But first, a little education. There are three kinds of audits, a) Correspondence Audit: The simplest kind and it’s usually the result of you making a mistake on your return; b) Office Audit: This one is more complicated. You’ll need to go into an IRS office with required paperwork, but the bigger thing to keep in mind is that this kind of audit could be a result of some high tax deduction like, say, a large medical expense; and c) Field Audit: This one is similar to an Office Audit; however, this time, the IRS comes to you and asks to see your records.
No matter the type of audit, don’t freak out. Simply take a deep breath, and gather all your documents: W-2s, 1099s, bank statements, proof of income, investment statements, along with bills, receipts and other proof of expenses. Next, schedule your audit or postpone it. Then, keep a cool head and strive to be compliant with IRS representatives because, after all, they are just doing their job. However, the very best option is to call a tax professional. He or she will know exactly what to do and walk you through this sometimes hairy process.
So there you have it. There are ways to survive the situations that you might have around filing your taxes. The motto to keep in mind? This, too, shall pass.
Thomas Jones is the lead tax partner at McConnell & Jones. With more than 40 years of experience , Mr. Jones is responsible for providing a complete range of tax services including tax compliance and IRS representation. . Furthermore, he offers substantial experience serving the gift, estate, and trusts tax consulting and compliance needs of high net worth taxpayers. Connect with Thomas on LinkedIn or Twitter.