You don’t want to mess with the Internal Revenue Service. One small mix-up when handling your finances can cost you big.
For example, in recent years the IRS has increased its filing of levies, liens and wage garnishments. In fact, in 2010 alone, over 3 million levies were filed.
Look over this list of common ways people get into trouble with the IRS, and see if you fit any of them:
Filing too many allowances on your W4. An allowance determines how much income tax is withheld from your paycheck. The bigger the number listed, the more pay you will take home each check. So more is better right?
Not necessarily. If the kids just finished college and are no longer your dependents, if you’ve just gotten married, or if you’ve just got a huge raise at work then you PROBABLY need to review your allowances. Why? We’ll if you lose dependents, that will be less of a tax reduction on your return. If you didn’t have that extra tax withheld via your checks, you may find yourself owing big time. See this post to understand just how refunds/balances work.
Being unaware of taxes associated with the early withdrawal from certain retirement plans. If you withdraw from a retirement fund such as a 401(k) or IRA before you’re 59 1/2, you may face a 10 percent federal penalty on your investments, as well as a state penalty and an income tax on the money withdrawn.
Not paying enough taxes when self-employed. Many people who own their own businesses don’t know how much they have to pay in taxes. The tax structure for a self-employed person, what to pay, how to pay and what can be deducted, is decidedly complex, so it’s easy to become confused. In this post, we try to shed just a little light on it.
Not paying taxes on winnings. It is necessary to report all gambling winnings, including winnings from lotteries, casinos and horse races, as income.
For people who are in trouble with the IRS, there are various programs available that can provide debt relief if a taxpayer qualifies. If you are facing IRS debt, we can help you determine if you meet the requirements for one of these IRS programs. Our staff includes certified public accountants and other experts that offer tax services, financial planning, small business services and other assistance. To schedule an appointment to discuss your tax situation, please call 773.239.8850.