Filing taxes is annoying and something that most people dread. However, even worse than filing your taxes and finding out that you owe is finding out that there are penalties being added. The common penalties are from failing to have health insurance, not paying your taxes on time, or if you underpaid your taxes throughout the year. Here are five tips to preventing being slapped with a penalty by the IRS.
Get Health Insurance
To avoid a penalty from the Affordable Care Act, you must have either health insurance all year long, or have an exception. There are multiple exceptions that you can apply for, including only going two months without insurance at a time or have a financial hardship. If you do not have the minimal essential coverage met or have the exception, you will have a shared responsibility penalty. This penalty will be applied to every month you do not have insurance.
Failure to File
If you owe money and you fail to file your taxes, you will have a penalty that is charged monthly. It applies immediately after you missed the deadline. When you are unable to pay your taxes, it is better to file and apply for a payment plan or an extension so the penalty is avoided. Thankfully, the penalty does have a max, but 25-percent of the unpaid taxes may be a hefty fine.
The IRS does not like waiting until April for their money because they do not make any interest off of it. Therefore, they have a penalty if you underpay your taxes and owe them more than a thousand dollars in April. The penalty gets more severe for each year you do not pay enough during the year. You can avoid this penalty by paying quarterly if you are a business owner, or increasing your deductions so that you have more taken out of your check throughout the year.
Seek Professional Assistance
Another penalty that is difficult to avoid is the self-employment tax. This tax will be required if you run your own business or you are a freelance contractor. It is best if you talk to a tax advisor to find out when you should file taxes and how much you should pay to avoid having to pay as many penalties. They will help you overestimate how much you will owe through the use of an estimator worksheet called the 1040ES.
Tax penalties are a pain and they can make the amount you owe the IRS skyrocket. They can happen because you pay too little throughout the year, not paying on time, not filing on time, or not carrying enough health insurance. When you owe taxes, it is better to pay your taxes on time by taking out a small loan (click here for more info) or apply for an extension. Then change the way you have your deductions set up or pay more throughout the year so you make sure the government does not take more money from you next year.