Simple Ways Of Avoiding Tax Penalties
If the IRS has ever slapped you with tax penalties or fines
, you must know how painful it can be. It not only hits your finances, but it also puts your account under greater scrutiny from the relevant authorities.
So, what can you do avoid these penalties?
1. Prepare Early For Your Returns
Many people wait for the last minute before they start running around to get every document in the right place. Unfortunately, these documents tend to disappear when you need them the most. The taxpayer is left with only two choices:
1.) Submit the returns before the deadline and miss out on benefits that require documentation or
2.) Submit the returns late and risk IRS penalties and scrutiny.
2. Don't Try To Con The System
Never try to con the system. With the IRS offering rewards to those who squeal on tax cheats, the chances of being caught are extremely high. If someone comes and tells you about a "deal" that has such a "great loophole" don't follow him or her. Although at that time it might sound like a big opportunity to bend the law, you will not be able to realize when you break it, which will certainly land you in jail.
3. Hire A Consultant
The average taxpayer does not know everything about tax laws and ethics. Unless you are trained regarding these issues, it is always advisable that you hire a consultant, especially if your tax position is a bit complex compared to that of other people. This will help you make informed decisions when it comes to the grey areas.
4. Plan For Your Income Tax
In many cases, self-employed individuals are tempted to postpone the payment of taxes, thinking that the money that they will earn in future will be a lot and may help pay current and future liabilities. Unfortunately, many of these hopes never materialize and the person is usually left with no money to pay the authorities. Fines and penalties will arise out of this and cause the liability to increase even further.
5. Keep Proper Records
The importance of keeping proper records cannot be overstated. If you happen to submit your forms and something tells the IRS to audit your accounts, keeping proper records of your transactions is the only thing that will be able to save you. If you fail to produce the required records to prove your income and expenses, it will be difficult for you to prove that the information you provided was accurate. This might cause them to penalize you for "lying" to them, simply because you were unable to produce the necessary documents to prove your case.
These five reasons will help you avoid majority of the penalties. However, new laws will always come up and what is legal today might be illegal tomorrow. Therefore, the best way to avoid such penalties is to be properly acquainted with the ever-changing tax laws.
by: David de Souza
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