The tax filing season often proves to be a stressful time for most people. Filers often find themselves stuck with intimidating situations and tax problems that are extremely difficult to resolve. Since the slightest of errors or compliance issues can severely impact your financial situation, you should most certainly take time out to research solutions to solve tax controversies you're faced with.
To help you out, we've compiled a list of the most common tax problems along with their solutions:
1. Not Filing Taxes at All
Starting with the most common issue, the non-filing of tax is the worst thing you can do to yourself. It's considered a form of tax evasion by the IRS. Non-filing of taxes not only leads to hefty penalties and fines but may also lead to jail time. Besides a $10,000 fine, you may have to serve up to a year in jail.
To avoid these issues, you must file something even if you can't afford to pay all the taxes at the moment. To deal with the problem more affordably, you can submit either the Application for Automatic Extension or the Installment Agreement request.
The Application for Automatic Extension gives you more time to file your tax returns. Although you won't get an extension on your tax payments through this form, the penalties and interests payable will be much lower than what you would pay for not filing.
The Installation Agreement Request form allows you to pay your taxes in installments so that you don't have to file the returns altogether. You create a payment schedule for your tax installments. Since you aren't paying by the deadline, penalties and interest will still be charged, but they'll be much lower than what you'd pay for not filing at all.
2. Making Calculation Mistakes
Depending on how you choose to file your tax returns, you might end up making unnecessary math errors, which can create problems later on. This often occurs when you prepare your taxes at the last moment.
The simple solution is to start preparing early so that you have ample time to double-check the calculations to ensure that all figures were added up correctly. Another effective way to avoid calculation issues is to use a reliable tax preparation software to prepare for taxes. This should at least help you avoid simple addition and subtraction errors.
3. Not Staying Updated With the Latest Policies
A common issue with filers who choose to prepare for taxes on their own is that they fail to track the changes in tax code. Tax policies are subject to frequent changes so much so that you might not be eligible for tax credits this year that you were entitled to last year.
Staying up-to-date with tax updates helps you avoid unnecessary tax problems, saves money, and allows you to take advantage of any available benefits.
If you can't keep track of the tax updates, hiring a tax specialist is a great option. They are well-informed about the latest policy updates and will file your taxes correctly.
4. Being Charged With Interest and Penalties
Facing penalties and interest is the last thing a responsible tax filer would want. Interest and penalties are the extra amounts charged by the IRS and only add to what you owe the government. If you do get charged with penalties and interest, the only viable solution is to request an abatement from the IRS.
To get your abatement request approved, you must have a reasonable cause or an administrative waiver or an error on IRS's part. Since getting an abatement is not that simple, it's best to hire a tax specialist who ensures that your case meets at least one of those requirements and files the abatement request on your behalf.
5. Facing Levies and Garnishment
Suppose you worked out a payment agreement with the government by filing an Installment Agreement Request. In case you failed to make the scheduled payments or violated the agreement in some way, the IRS can garnish your income and place a lien on your assets.
Keep in mind that the IRS doesn't need a court order to garnish your income. While states typically restrict creditors to 25% of the defaulters' incomes, the IRS can even take more than that. In reality, the IRS would generally leave enough of your income to support your family, yet its free reign over your income is concerning.
If you're faced with garnishment or levies, filing a garnishment or levy release can be a way out. You'll probably need to prove how the garnishment or levies are causing financial hardship to you and your family. The release will typically be subject to certain conditions and require you to abide by another payment plan.
Given the complexities involved, it's advised that you seek professional help from a tax expert who knows how far the terms of release are negotiable and work out a payment method that works to your advantage.
Final Word
Today, the majority of common tax problems arise from lack of planning and rushing through things at the last minute. Thus, the best way to avoid common tax problems is to prepare for the filing season well in advance.
Another highly recommended option to avoid tax problems is to hire a tax professional to handle your case. If you're faced with any of the tax problems explained above, reach out to a tax specialist who will offer expert tips or handle the problem for you.
Remember, we all make mistakes, especially when it comes to numbers, but when fines and penalties are concerned, we have to be extra careful. However, the good news is that with the help of a tax professional, you can solve all common tax problems, no matter how difficult the situation gets.
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