These Factors Can Get Taxpayers in Deep Water with the IRS
Making mistakes when filing a 2020 federal income tax return can put taxpayers in deep water with the IRS. Filing late, not paying enough taxes throughout the year, or inaccurately claiming deductions can trigger audits, penalties, and fines. With more changes to the tax code this year, a tax attorney can help filers avoid or deal with the consequences of such mistakes.
Owing Taxes Because of Underpayment
Underpaying taxes can be avoided in many cases. Reviewing their W-4 withholding forms to make sure they are up-to-date with their personal circumstances is a good start. Most independent contractors, freelancers, or self-employed individuals are responsible for making quarterly estimated payments throughout the year. Underestimating or not making these payments can lead to a hefty tax bill on April 15 and a possible penalty for underpayment.
Failing to Report Income
For every W-2 and 1099 generated and distributed to workers, a copy is sent to the IRS. When taxpayers have multiple streams of taxable income, it can be easy for one or more sources of income to be overlooked. Alternatively, it is possible that a W-2 or 1099 was not sent or was lost in the mail. Organization and honesty about reporting all income streams can help taxpayers avoid IRS penalties.
Failing to File Taxes on Time
Taxpayers who know they will be unable to file their taxes on time have the option of filing for an extension. However, this does not relieve them of the obligation of paying their taxes. Whenever possible, it is best to pay what is expected to be owed to prevent getting charged interest and penalties.
Not Responding to Inquiries from the IRS
Failing to respond promptly to a request for information or notice of payment can lead to severe penalties from the IRS. These can include wage garnishments, bank levies, or tax liens. A tax attorney often advises taxpayers about how to respond to avoid these penalties.
Not Knowing Taxpayer Rights
Taxpayers have a right to fair treatment, privacy, and to pay only the taxes they lawfully owe. In exercising their rights, taxpayers have a right to have a CPA, enrolled agent, or a tax attorney act on their behalf when dealing with the IRS.
